Typical Returns on Short Term Vacation Rentals

9 Replies

I am looking to get into short term vacation rentals- specifically in Phoenix. The one thing I can't find is examples of other people who are using a company like Turnkey and what their returns are? Say if I put $50k down on a $200k house what could I reasonably expect for a return? Is it reasonable for me to expect say $3k/mo. in gross rents then after their 18% fee and the mortgage and a typical month of expenses to cash flow say $200/mo.?

If you have any experience with short term vacation rentals (self manage or having a property management company like Turnkey run it) I would love to see an overview of your numbers and if this would be a good investment for me in the Phoenix area. Feel free to include your gross rents, expenses, property management fees, maintenance, other expenses, cash flow, or any numbers you have from other markets as well.

@Kyle Seidel - start with getting a market report from Airdna.co They scrape all the public info from Airbnb and combine it into a nice report. It will let you compare similar size properties in your area. Then you can get average nightly rents and average occupancy from the reports. Having this data will let you know what good estimates are for gross income on a short term rental.

Then you can start to estimate expenses. Good luck!

I would also look at homeaway /VRBO as Airbnb is only part of the market and for me it is a tiny part of my gross rents.

You can look at comparable properties on Homeaway and Airbnb for free. Check rates and how full similar property's calendars are to get an idea on what you could make with a similar property.

Then you can run the number son your mortgage utilities and misc expenses and see what it looks like.

If you dump all the data into a spreadsheet with hyperlinks to comparable properties it is easy to spot trends and update your numbers for different variables.

How much is a decent hotel room per week in Phoenix?  That's what you can expect for a 2 bedroom VR.  If it's a 3 BR VR, expect 50% more.

I charge $400/week for my 2 BR's, $600 for 3 BR, and $800 for 4 BR.  A general rule of thumb is that the first week of rent pays the utilities (elec, gas, cable, trash, water), weeks 2-4 are my profit as I self manage and do repairs myself.  22 properties, 82 beds.  Most are bank foreclosed properties purchased for 25 cents on the dollar of the appraised value.

In your case, week 1 should pay your utilities.  Weeks 2-3 would be your mortgage payment (guessing $800 - $1000). Week 4 would be your property management fee and repairs.  Your profit is days 29 - 31. 

What will you do if a place is vacant 3 or more days a month?

@Kyle Seidel I think what you're missing is that putting $50K down on a $200K house is just the start.  You need to furnish it and buy everything, all of the way down to cutlery in the kitchen.  It doesn't sound like much but it...will...all...add...up.  Wear and tear is also just "different" because you now have things like bed sheets that don't last forever, no guest will want to use stained towels, etc.  And the ongoing expense structures aren't the same either:  cable, internet, maybe Netflix, all utilities, landscaping, etc.  

I use AirDNA as a resource but I don't totally count on it. The reason for that is I see a lot of variance month to month for different property types, which makes me think their data set might be a little low. When we're running Airbnb numbers in Denver and in Colorado Springs, we do additional research. 

Airbnb.com actually has a place where you can start listing your property (it's under the Host drop down on the horizontal bar.) You don't have to be totally ready to go with your listing, but you can use it as an estimate for what you can get. Airbnb will run the numbers based on location, type of property and amenities. I think they probably have a stronger feel for this as they have more numbers to work with. 

Added to that, you can look at Airbnbs in your area and see how often they are rented and for how much. That would give you an idea of what to expect and what to ask for when using third party property management. Good luck! 

I actually rent out my timeshares to do test runs on markets and determine places to invest for STR. I've been doing Phoenix this year and I haven't had good numbers on it. I figured maybe the summer months were too hot and people weren't going there but fall is here and still the numbers haven't moved. I do notice when people go to Phoenix they are usually staying a few weeks at a time so it's definitely seems to be more vacation rental focused than STR focused. I would definitely check out Air DNA but be warned their numbers aren't always accurate. I personally wouldn't touch the Phoenix market just from my own personal research but I'm pretty sure you can find someone that is probably getting great returns in that market. I also see quite a few listings with a good amount of reviews so there's a niche out there in that market. I also hear there are some strict HOA's out there even outside the condo market.

Thanks for your recommendations @Andrew Kerr , @John Underwood , @Andrew Johnson , and @Erin Spradlin that will be a great help!

Great job @Paul Sandhu on self managing and getting a great profit on your 22 properties!  I really want to get into short term vacation rentals and your last point is exactly why I'm asking around to see what's typical for cash flow. Since I can't self manage like you since I'll be out of state I'm curious if there'll be any profit left after paying a property management company 18% as well as paying off a mortgage that we'll say will be $1,000/mo. as well as ongoing maintenance. I'm ok with a slim positive cash flow since I'll be visiting and using my place 2-4 weeks out of the year but in my initial research I'm worried if I can even get that.

Thanks for your input @Myka Artis . From a vacation/fun perspective I love Phoenix, but looking up pricing on Air DNA as well as seeing what places are going for on airbnb and knowing my expenses will be high (18% property management, $1,000ish mortgage, ongoing maintenance, etc.) is making me less and less excited to invest out there. Do you have a breakdown of income and expenses for a typical month or year of one of your properties? If so I'd love to see some real life numbers.

@Kyle Seidel My numbers only show volume of travelers. My numbers on profit are skewed because I don't pay for any utilities, mortgate, etc because the properties are timeshares.

       I ran some numbers on vacation rentals in the Tempe area a year back or so, and the returns weren't bad.  Might be something to look into.  They weren't enough to get me into that market, but if you like the Phoenix area might be something to consider.

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