Ok, I guess it ended up being 3 questions!
Why do you ask? What’s your goal in receiving this info?
Our list of potential locations is just too big and we’re trying to focus in. Based on what we hear back, one filter I’d like to use is whether we can fly there direct from MSP. With regard to number of days rented, just trying to get an idea for each area so we can accurately project ROI.
@Craig Fitzsimmons I have three vacation rentals in Fort Walton Beach, FL (near Destin, FL on the Panhandle). I self-manage and I live here. I know that is a bit more difficult for people who don't live in the area where their rentals are located. I have found out that paying a full-service rental management company can certainly provide peace of mind and a totally "hands-off" experience for out of town owners, but the 20% to 30% of gross rental income fees pretty much eradicate any potential profits you hope to make. My two established properties were rented about 300 days last year. I usually have very little vacancy. The third property I just bought, so can't give stats for 2017. Occupancy really depends on several factors. One is obviously the area. Down here in Florida we have the beach season, but we also have the "snow birds" in the winter. While off-season is slow for many rentals here too, there is definitely potential to fill the units. Most of my vacancy is usually in November (except for Thanksgiving), early December and the 1st week of March. The other factors that play into occupancy is the quality of the property (good upkeep, well decorated, amenities, etc), the pricing (needs to be competitive off the bat, pricing too high only to offer constant "deals and discounts" is a turn-off for many guests, pricing too low or not in keeping with the season leaves profit on the table), and the management style/response (whether self-managed or otherwise). Prompt, professional response, attentiveness to every guest and all their questions, etc is key. I know that many people find it very daunting to manage their own vacation rentals from a distance, but you should really consider it or at least consider managing your own "partially". I don't want to promote my business here because that is against the rules of the forums (which I respect), but if you ever have questions about various "hybrid" programs and assistance to VRBO owners who manage themselves, I will certainly be glad to discuss further as I provide some of those assistance services down here in Ft Walton Beach.
Wherever you choose to buy, it's a good idea to visit in the off-season as well. Also, when you do your "rental income pro forma analysis" be very conservative with expected occupancy especially in the first year. Owning vacation rentals on the beach is great if you put in the time, the research and attend to your guests. They have many options to choose from.
Hi @Craig Fitzsimmons , thanks for the post! I'm going to assume you are looking for something that 'pays for itself' at a minimum if you are asking about occupancy rates.
For me, I like to start with a places I want to vacation and then see if the numbers make sense. So, to that, I would start with how much you have to invest, figure out if you are going to use leverage and work your way backwards into those regions you want to frequent and that fall into those financial parameters.
You can use Everbooked to see really high level metrics on occupancy rates and ADR (average daily rates) for free to get an idea of annual revenue. Unless the property is within a few hours drive you are likely going to pay the 20% property management fees and then tack on about 20-40% operating expense ratio from there to get some round numbers (remember you will be paying for cable, landscaping, electricity, gas, HOA, etc. etc.).
I personally have been looking for a beach property for a few years, unfortunately my 'regions' are California/Hawaii and right now it's just tough to make the numbers work for my specific investment criteria. There are plenty of places in the Gulf and East Coast though that look like they would do just fine.
Best of luck on your search!
@Villy - Destin is one area we’re considering! I was not expecting to hear occupancy as high as 300 days/year, so that’s fantastic.
Do you have any insight about Palms of Destin? A year ago or so I heard some poor things about their management. And I assume they take over and manage most of the rentals (for a huge fee) anyway.
Thanks for the info.
@Jon Crosby - thanks for the info! Never heard of that site.
@Craig Fitzsimmons Just at a macro level, you might be overthinking things (a little bit), here’s why:
1.) If you a property that peaks your interest in a lot of the markets it may already have a track record when it comes to occupancy.
2.) Any realtor in a vacation rental market has contacts with at least a couple of PMs. Those PMs will know right off the bat what a “3 bedroom, 2 bath, sleeps 9, etc.” home is likely to bring.
3.) In family destination spots the large homes are disproportionately good in the summer and horribly weak in the winter. Snowbirds don’t want a 6 bed, 5 bath home!
4.) If you don’t go the condo route and look at the Gulf Coast make sure you ask about wind/hail insurance (not cheap).
5.) You’ll give up 18%-30% for PM fees. If you go the condo route, don’t underestimate the dues.
6.) In some markets you get repeat visitors. Give a good experience Year 1 and the book again in Year 2. If you start from scratch it’s momentum from scratch. If you buy one with 2018 bookings already set (and it’s a good property) you give yourself a little tailwind.
Bottom line: Occupancy is important but is further down the list than you think. It’s also not the best way to guess what the gross rent potential is. The best way is to ask the PM that’s going to be in charge of marketing and bookings.
Second bottom line: If you’re outsourcing PM it’s hard to make a good return. It just is. You’re bidding against people that will get pleasure from the property. So, my advice, buy something in some area you’ll get pleasure from too. If you want pure ROI there are better ways to spend your money :)
@Andrew Johnson - well said! Thanks for the feedback.
You're kind of missing out on a HUGE piece of the profits if you dont self manage. Just make a few systems from your location and implement them.
Write and SOP for unit turnover to give the cleaners, get a handyman on your team, make your airbnb presence very strong and converse with the guests to make it feel as if you were just down the street, and dont skimp on furnishings etc cause no one like a walmart decorated vacation rental.
Just my $0.02.
I agree with Chris A. VRBO/HA makes it very easy to self manage. No one will do as good a job as you will. You just need a good cleaning service or person and a handyman for fixing small stuff. The few time I have had a problem I just pick up the phone and get a repair person over to take care of any issue. The people who were renting were very understanding and still left me a 5 star review because I had it taken care of quick. You certainly don't need to be in the same area to self manage. I use Wi-Fi thermostats to save on electricity between guests and have a couple exterior cameras to keep an eye on the place.
@John Underwood - are you also seeing very low vacancy rates at your properties? I was quite encouraged to hear some are seeing it rented 300 days a year!
Originally posted by @Craig Fitzsimmons :
John Underwood - are you also seeing very low vacancy rates at your properties? I was quite encouraged to hear some are seeing it rented 300 days a year!
Craig I have a Lake house in SC but yes Homeaway keeps my occupancy rate above 300. I live an hour away. I can check on it if want but I don't need to as it is easy to manage remotely once I got my team in place.
I'm always intrigued when people focus on occupancy, instead of gross rental revenue or related. The strategy that puts occupancy at 80%+ is often not the one that maximizes revenue, at least in markets that have highly variable pricing. In many markets if your occupancy is 80%+ you are pricing too low and leaving money on the table. Especially if you aren't using time discounted pricing.
@Craig Fitzsimmons I completely agree with others above who suggested that you self-manage. Or at least partially self-manage and you an on-site assistance service (preferably flat fee, not large % of your revenue) to help you keep the place going, to dispatch the cleaning people and deal with maintenance issues. A full-service rental management company will take up to 30%+ of your gross revenue, which pretty much makes any net profit impossible. If making money on your vacation rental is something you want to do, you should definitely look into self-managing or mostly self-managing. If you're considering the Destin market I can definitely give you some info about cleaning people, maintenance services and onsite "boots on the ground" services. I'll send you a private message for that.
Another point to make, you will see better occupancy rates IF you self-manage and do so properly. A property manager is not going to respond to booking inquiries at 11pm at night when many busy families try to book their summer vacation on VRBO. By the time the property manager looks at an inquiry at 9am the next day, a self-managing owner has already accepted that booking reservation and sent the guests a personal welcome message. Hence the higher occupancy rate. Also, rental management companies "rotate" properties. Which means that if someone inquires for a rental on their site, they don't necessarily offer your property to that prospective guest.
The Palms in Destin is a huge complex. Not my favorite. In Destin and in Fort Walton, you really want to be on the beach, with a view of the beach, etc. The beach is the name of the game. If not the beach, then the Bay. The Palms and other really huge complexes like it have some units with amazing views, etc. Those usually sell for a huge premium. On the other hand, you have units that are on the side, always in the shade, facing the parking, etc. Those carry vacancy, yet you still pay the huge HOA fees. I like Okaloosa Island better because there is a cap on building height (6 stories) and all the complexes are directly on the beach. My two cents. If you are looking here, you won't be disappointed. The beach season is currently already open and we haven't even said goodbye to the snow birds :-).
@John D. - thanks for the info! I’m learning quickly that I might be looking at things the wrong way with the vacation rentals. Appreciate your insight.
@Craig Fitzsimmons I couldn’t make the financials work in Destin. In Panama City beach, you can make a profit still. You can be on the beach for a steal. I own 2 very profitable units on the beach in different complexes. I self manage. The rule of thumb for ROI is take the peak season highest rate and multiply by 15. It will nicely blend the rates for the year to give you a very accurate snapshot of your total revenue.
@Marc Jackson - thank you! Very good info.
@Marc Jackson and @Craig Fitzsimmons I agree about Destin being very saturated and profits being rather slim on short term rentals because prices are so high. I also agree that Panama City Beach is a good option, but would also suggest that you consider Fort Walton Beach / Okaloosa Island and Navarre Beach as well. Both areas are very close to Destin but still offer room for growth and investment.
Craig I love this idea. I've been seeing a lot of people posting here to self-manage. When you're a 2.5 hour flight away from the property, how do you do that? Is it as simple as utilizing a service like VRBO/Air BnB, hiring a cleaning service and you're good to go?
Originally posted by @Matt Jennissen :
Is it as simple as utilizing a service like VRBO/Air BnB, hiring a cleaning service and you're good to go?
@Lucas Carl is the resident expert on this.
If you are self managing STRs within 15 minutes of where you live, I'm the resident expert. 22 STRs with 82 beds, furthest one is 7 minutes away, that's what I have.
21 houses are normal. 1 house is paranormal. Google the lyrics to "Room 24" by Volbeat, a guy experienced those lyrics.
@Matt Jennissen yeah it’s pretty much that simple. But you’ve got to have guts. And be able to be there 4 times per year. Happy to teach you everything I know!
Self management from afar is totally doable. The key is screening the right person locally and establish a great relationship with them. You want to compensate them well because it is an insurance policy that your rental will run smoothly in your absence. I too am willing to share the apps I use and my compensation and interviewing strategies.
Take ^ @Lucas Carl up on his offer. He's incredibly generous with his time and has got a great system. Self-management from a distance can seem daunting at first but its doable, and will make a big difference in your profits. I'll be closing on my own distance STR in early May and have actually had a blast researching and making preparations. Each market is a bit different and may need some adapting but the general idea is to find people you trust. For most, its a cleaner that is willing to take on a bit more responsibility and keep a close eye on the property for you.
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