Retirement with short term rentals??? How would you get there.?
Investor · Lexington, KY · Member since 2015 · 139 posts · 100 votes
For people in this space, or in RE investing in general..how would you answer this question...
A couple wants to retire in 5 years, they would like to use short term rentals to supply them with 60-80k a year to live on. They have 300k they can begin investing with.....can they get there?
They would be happy to live in the rentals in the off season if needed to facilitate the plan and Ideally would like to own a lake house, house by the ocean (in town), and a home in their midwest city.
If not, would bringing another couple in with a similar nest egg be able to make it happen or would simply more money upfront be needed?
What are your thoughts, I didn't have an answer for them other than well most vacation rentals I think are considered a success if they just pay for themselves..... :) but maybe there is a strategy out there...
You are the one posting crap, not me. I would tell you that most of my posts on this website are in the STR forum, the rest are in the DIY forum; and that you can find all the answers to you questions in my old posts. But to save you time, I'll answer the 5 questions.
1. It is $200/week per bedroom that I charge, not $200/month. So a typical 2 bedroom house generates about $1700 in a month.
2. Bank foreclosures. I'm in a town with a population of 10,000. Amazon was the largest employer in the area until they closed the distribution center and moved away 3 years ago. Lots of people moved away shortly afterwards. If their home was on wheels, it went with them. Otherwise their home stayed.
3. $1000 will pay for labor and materials for bring a fuse box up to code with a breaker box. They do it in 4 hours. It will also pay for enough roll roofing to replace a leaky section of another house, and there is some change left over. It will also pay enough to replace dog urine soaked carpet and particle board in a master bedroom of another house and there is change left over. I also have a dumptruck, dozer, and 40 acres to bury/burn waste.
4. Estate auctions in nice neighborhoods, no goodwill/garage sales/flea markets. If the appliances and furniture were good enough for someone well off to live with in their own home, they are good enough for me. I have a 16' trailer and a 12' trailer. My wife and I both drive 1/2 ton trucks. The two of us can easily move the contents of a house in one trip. Estate auctions are Saturday morning. It's actually quite fun to buy stuff to furnish a new house. We've done it 22 times. My best bargains: 5 piece bedroom set, $50. Fridge, $15. Whole house central air system, $200 plus installation. 2 sofa beds, $10, those beds alone generated about $2500 each.
5. Been doing this for 5-6 years. Started with one house. Now we have 22 houses with 82 beds. 2 local motels and a mobile home park with cabins are in the process of closing or selling, probably because I've taken all their customers. Here is my ad from CL, posted it 12 days ago.
https://seks.craigslist.org/apa/d/refinery-contractors/6269418009.html
Only way I can see involves debt.
(1) Meet great builder who can give you discounted pricing on building a vacation rental.
(2) Build vacation rental
(3) Re-Finance out of vacation rental
(4) Use re-finance money to build new vacation rental.
You will have two vacation rentals. You will likely be able to get, if I had to guess, somewhere between 15-20% if you pick the right location and right type of property.
The 15-20% would be renting out both properties, not having them move in one. I don't see any foreseeable way to get them into a beach house without more capital up front.
There is another recent topic about best place to have a VRBO.
It seems that the Blue Ridge Mountains around Gatlinburg TN is one place people are buying more VRBO properties.
I would try and buy 4 or so properties at 20% down and finance them all. Their home town might not be as profitable as a beach condo. So I might look to find an inexpensive 1 or 2 bedroom property and hope to break even on it that one.
Also there is a lot of competition on some of the beach rentals.
I was surprised how cheap I could rent a condo at Myrtle beach so research would need to be done.
There are several article on BP's about where people are making a healthy return on their VRBO's so I would search here first.
@Brandon Stevens, so in a nutshell, it sounds like they want an investment with a 20-25% annual ROI? If they figure out it, be sure to let us all know because I will sign up immediately! :)
All kidding aside, I don't see anyway of them achieving that cash flow, in that amount of time without using some type of lease option hybrid model or possibly converting a rundown multifamily into a VR/STR in one of their target areas. Even so, I don't know how you get to that cash flow amount with that amount of cash in that amount of time...certainly bringing in another couple to partner with would be much more do-able but then again, they now cut their cash flow in half possibly and will have to work on scaling to hit their targets, which may not be part of their retirement dream.
I'm sure there are more savvy investors than me that might have a better answer for you on this one, but if I were them and $300k to invest to try and achieve 60-80k in 5 years...I would probably be looking at a multifamily fixer upper to get them there.
Thanks for your replies thus far, I believe they would certainly be open to financing. I did not mean to imply they would only use the 300k to do cash purchases.
I also believe they would live in their home midwest city for 6 of the months, and would be open to having more than the 3 properties. Just trying to see if there is a way through just vacation rental where they could travel and supply a certain yearly income.
@Brandon Stevens as @Jon Crosby mentioned, I don't see a clear path to do this with 300k leveraged or un-leveraged.
Ok lets simplify the question to, they just want to retire in 5 years, I'm pretty sure they have access to more than 300k, so lets say 500k, and they want to own a couple nightly rentals that they can also stay in in the off season...what your plan using any method.
This was just a question they posed to me because we now live off our rentals. My response was, as stated above, i assume vacation rentals are a success if they break even, but they like the idea of having a couple they can visit.
What might be a realistic strategy to get them there or close to there. Maybe it takes 10 years maybe it takes more capital.....
Buy houses in a small town with a refinery. Buy bank foreclosure houses. I pay between $6 and $8.50 per square foot for a house with central heat and air. The house normally needs about $1000 of work done, then it needs to be furnished (another $$1500 or so). Rent them to contractors working at the refinery. Each bedroom is worth about $200/week in rent. Houses pay for themselves in 6 months.
@Paul Sandhu so you're saying you can buy a 1000 square foot house for $6k, spend another $2500 to completely rehab it, rent it for $1400 a month? to pay for it in 6 months?
So many questions.
First off, it has 7 bedrooms to get it to $1400/month?
Second, where where do you buy these $6k houses? These days when it costs $50-100k minimum to construct a 1000 square foot house, unless it is in a war zone or has a major problem I call bs.
Third, $1000 of work done. That would not buy either new flooring or paint in a house that size for me. What exactly do you get for $1000. Please detail how many hours the contractor spent and material used.
Fourth, What do you furnish it with for $1500? Ok I'm almost willing to give this one to you because wonders can be done with goodwill, garage sales and flea markets. But exactly who is driving around and picking up and installing all of these items? You? Is your time, gas and wear and tear not worth anything? And by the way you are excluding the costs down the road of the bedbugs, fleas and roaches you put into the property.
Fifth, have you done this successfully and if so for how long and how many properties. Sure this may work once but it would be a fluke and is not a sustainable model.
Posting this kind of crap is a disservice to those who might read your post and really believe it's possible.
Interesting question @Brandon Stevens I suppose you'd need to start with location. You'll want somewhere that rents year round, so anything that closes for a season is out.
If you want to leverage that $500k you'll need the income to support that, from the Bank's point of view anyway. You could try to do it with owner financing though, albeit harder to find properties that way.
Combining STR with a place to live could be one option, if running a B&B sounds like fun those are always for sale, but it's a much more hands-on type of business.
I guess if I had to start from scratch with a leveraged $500k I'd still go for beachfront or really close to the beach, multi-family units on owned property only, nothing with a condo association.
Even then, I'm not sure it's possible in 5 years.
You are the one posting crap, not me. I would tell you that most of my posts on this website are in the STR forum, the rest are in the DIY forum; and that you can find all the answers to you questions in my old posts. But to save you time, I'll answer the 5 questions.
1. It is $200/week per bedroom that I charge, not $200/month. So a typical 2 bedroom house generates about $1700 in a month.
2. Bank foreclosures. I'm in a town with a population of 10,000. Amazon was the largest employer in the area until they closed the distribution center and moved away 3 years ago. Lots of people moved away shortly afterwards. If their home was on wheels, it went with them. Otherwise their home stayed.
3. $1000 will pay for labor and materials for bring a fuse box up to code with a breaker box. They do it in 4 hours. It will also pay for enough roll roofing to replace a leaky section of another house, and there is some change left over. It will also pay enough to replace dog urine soaked carpet and particle board in a master bedroom of another house and there is change left over. I also have a dumptruck, dozer, and 40 acres to bury/burn waste.
4. Estate auctions in nice neighborhoods, no goodwill/garage sales/flea markets. If the appliances and furniture were good enough for someone well off to live with in their own home, they are good enough for me. I have a 16' trailer and a 12' trailer. My wife and I both drive 1/2 ton trucks. The two of us can easily move the contents of a house in one trip. Estate auctions are Saturday morning. It's actually quite fun to buy stuff to furnish a new house. We've done it 22 times. My best bargains: 5 piece bedroom set, $50. Fridge, $15. Whole house central air system, $200 plus installation. 2 sofa beds, $10, those beds alone generated about $2500 each.
5. Been doing this for 5-6 years. Started with one house. Now we have 22 houses with 82 beds. 2 local motels and a mobile home park with cabins are in the process of closing or selling, probably because I've taken all their customers. Here is my ad from CL, posted it 12 days ago.
https://seks.craigslist.org/apa/d/refinery-contractors/6269418009.html
@Brandon Stevens - I think it's going to take longer than 5 years unless there is some additional debt involved.
I'm on this exact plan. Started with 3 and now have 8 turnkey rentals generating $6k per month gross income going into my IRA every month.
I use other people's properties for corporate housing and 300k to retire to use to retire in 5 years to produce 80k/yr would be extremely easy for me. My biz partner (@Andrew Wong) and I all-in'd at 30k and now producing, conservatively, $500/mo/unit at 6 units, yielding $36k/yr. Realistically, it's closer to $800+/mo/unit.
[edit: by "producing" I mean what we pocket as net profit, not gross income.]
At $300k, you'd have to have poor margins and execute poorly to only get $80k/yr with this particular model. Note they'll get no equity though (but you mentioned they wanted cash flow).
They can likely do something similar. @Al Williamson (www.leadinglandlord.com) and @J. Martin (can't tag him for some reason) does similar things as well.
To answer your question:
"Can they get there?"
I don't know dude, can they? I don't know these people and I don't know how motivated they are. They can have $300k and stare at it for 5 years...in which case "no, they can't." Or they can figure out a way that works for them and just do it, in which case "yes, they *probably* can."
Only you can answer the "can they get there?" question - have you known them for a while and known them to be go-getters and actually do stuff, or do you know this couple as people who vacillate and make excuses and ponder and think way too much about stuff?
Yeah a lot of people on this forum doing STRs are just doing a traditional "buy a house/apartment, and make short term rentals out of it".
There are a lot more creative ways to be able to do this stuff. @Angelo Wong referenced a popular strategy.
Another one off the top of my head that seems somewhat popular is convince someone to sublet one of their rooms and you do the management and split the profits. So you don't need to pay any rent, but you make less money.
@Brandon Stevens as @Angelo Wong has stated "master leased" properties for corporate housing/furnished rentals is a great model for cash flow. The margins look fat, but you really do have to treat it as a business and get all of your processes in place. If the couple you are referring to want to be totally hands off this might not be the road to go down. I am sure @J. Martin can shed some light on the subject. I am a buy and hold guy, but this market looks so juicy I might have to jump in myself... Just kidding J!
@Brandon Stevens as @Angelo Wong has stated "master leased" properties for corporate housing/furnished rentals is a great model for cash flow. The margins look fat, but you really do have to treat it as a business and get all of your processes in place. If the couple you are referring to want to be totally hands off this might not be the road to go down. I am sure @J. Martin can shed some light on the subject. I am a buy and hold guy, but this market looks so juicy I might have to jump in myself... Just kidding J!
Short term rentals are not a passive/retirement strategy. It is a business operation that cash flows. We do >30 days, where the net margins after paying someone else to do the work are around 15%. Maybe 20% if you get lucky or are better than I. And that's a pretty decent size biz. But not short-term. Smaller size has lower margins, unless you're doing it yourself, but not paying yourself. To be honest, I thought the margins would be better - and while the gross margins are pretty decent - there's a lot of human "touch" that goes into running a hospitality business, which is what this is.. I don't do as well as Angelo, so would need to target areas and owners where short term rentals are allowed. Also, winter usually isn't very good, but summer rocks in the Bay.
Another issue is that it is capital intensive to grow. When you look at a month's rent + security deposit + furniture & stocking + set-up cost by third party, it's $10K just for an apartment. So if you want to add 10 units per year, that's $100K in capital required. For you to earn.... how much? With how much time and effort? How many people, and how long to manage them? And that $100K is not a permanent asset. Most of it is a depreciating asset that has to be replaced periodically, so is really an amortized expense.
The better money/margins is truly in the short-term rentals. However, many cities (especially in the Bay Area) are passing ordinances against rentals under 30 days. So I'm ahead of the legal curve, but behind on the margins. For that reason, I still have to work. It fits my lifestyle of traveling from anywhere and makes enough for what I do. But hard to get rich on it.
The people I've heard that are most successful do short-term rentals in high-demand areas, have multiple-bedroom houses in high-demand areas, or do more of a hostel-style rental with more bed/heads per bedroom. I'm looking into this more.
Arlen, I might be able to split off an extra chunk for you, doing short-term rentals, rather than over 30 days ;) But they're banning it in Oakland. (surprise surprise).
@Angelo Wong @J.Martin ( I can't tag that either for some reason) would you be willing to give a brief primer on what exactly you're doing? Is it master lease then sublease for STR? If so, and you're targeting corporate housing, how do you advertise for that?
@Paul Sandhu So I did a little research into Coffeyville today because I wondered what type of town it was. And I have to say you are correct there are plenty of houses for sale there for less than $30k.
But back to the original poster's question, I personally would not recommend they invest their life savings in buying cheap houses in a small town that would likely die out if it weren't for the refinery.
You're suggesting they buy themselves a whole lot of work which doesn't sound like a great retirement to me. And I guess they would need a bulldozer, dump-truck and 40 acres to 'bury stuff' so that would take part of their life savings.
And what exactly would they do if there is a major fire or other accident at the refinery that shuts it down? Who is going to rent the cheap houses then? I guess they could always sell the houses to recoup their life savings in that case? Would they get their investment back?
I'm glad you and your wife have found a business plan that works for you but I still don't believe it is the right thing to suggest as a retirement strategy for someone with limited funds.
I hate to correct you big john @John Underwood but we usually refer to the Great Smokys when talking about Gatlinburg. @Avery Carl is the best realtor in the area and specializes in out of state self managers. She's very busy but hit her up she'll be happy to answer questions.
We were able to put up the numbers the OP is talking about in less than a year which much less cash than that. Of course we used leverage.
I bow to your expertise in the naming convention and thank you for the correction! :)
I will chime in that I think to make a living, or retirement income out of this, it all comes down to the buy price and your expenses vs op income. I can't make the numbers work until you are perhaps only financing no more than 50% down. Even then you need high occupancy rates.
It is a lot of work to manage these units and achieve good reviews and high occupancy. And to do that, you're reinvesting more capital to maintain those units in a high standard.
If you're only making 5-10% (after ALL your time and expenses), there are easier ways to make a return.
You are the one posting crap, not me. I would tell you that most of my posts on this website are in the STR forum, the rest are in the DIY forum; and that you can find all the answers to you questions in my old posts. But to save you time, I'll answer the 5 questions.
1. It is $200/week per bedroom that I charge, not $200/month. So a typical 2 bedroom house generates about $1700 in a month.
2. Bank foreclosures. I'm in a town with a population of 10,000. Amazon was the largest employer in the area until they closed the distribution center and moved away 3 years ago. Lots of people moved away shortly afterwards. If their home was on wheels, it went with them. Otherwise their home stayed.
3. $1000 will pay for labor and materials for bring a fuse box up to code with a breaker box. They do it in 4 hours. It will also pay for enough roll roofing to replace a leaky section of another house, and there is some change left over. It will also pay enough to replace dog urine soaked carpet and particle board in a master bedroom of another house and there is change left over. I also have a dumptruck, dozer, and 40 acres to bury/burn waste.
4. Estate auctions in nice neighborhoods, no goodwill/garage sales/flea markets. If the appliances and furniture were good enough for someone well off to live with in their own home, they are good enough for me. I have a 16' trailer and a 12' trailer. My wife and I both drive 1/2 ton trucks. The two of us can easily move the contents of a house in one trip. Estate auctions are Saturday morning. It's actually quite fun to buy stuff to furnish a new house. We've done it 22 times. My best bargains: 5 piece bedroom set, $50. Fridge, $15. Whole house central air system, $200 plus installation. 2 sofa beds, $10, those beds alone generated about $2500 each.
5. Been doing this for 5-6 years. Started with one house. Now we have 22 houses with 82 beds. 2 local motels and a mobile home park with cabins are in the process of closing or selling, probably because I've taken all their customers. Here is my ad from CL, posted it 12 days ago.
Congrats on your success. Have you evicted any of those contractors? Or you make them sign weekly rental agreeement so you dont have to foloow eviction law? Also, is there any zoning code for less than 30 day stay?
Your model sounds very profitable but in some states, the law is set up to screw landlords.
I've never evicted a tenant, nor do I make them sign any rental agreement. They move out the day their job is over, or the next day if they have a long drive. When this happens, I have to give some of their rent back. Other times they know the job is winding down and they pay for a partial week and leave when the time comes. Zoning codes are not a problem. They work 10-12 hours a day, 6 or 7 days a week. Their pay is between $25-$35 an hour, and they get about $80 a day to cover living expenses.
Guys making the $35+ don't usually stay here very long, but I get good money out of them each week.
Guys making $25 or less usually stay here a long time, but I don't get a lot of money from them each week.