Vacation Rental Properties

22 Replies

I would like to get thoughts and opinions on investing in vacation rental properties (pros and cons). I currently own a non-vacation rental duplex property but was thinking of diversifying with my next investment property being a vacation property. Any feedback would be greatly appreciated.

I was thinking of this as well. It all depends on the numbers. I know a guy who specializes in this. He told me if I ever come across anything run the numbers by him. I've been thinking about Atlantic City.

First you need a location that is within driving distance of a major metro, you can get more rent per night, but it can be inconsistent (seasonal) and more at risk if an economic downturn were to come.

I know all real estate is about location but especially vacation rentals.

1) Check local taxes - some high vacation areas will charge a tax even on individual vacation rents

2) Make sure you have a good and affordable cleaning service that can also take of quick questions - some property management companies will handle this

3) Check local governement to make sure there are not any law against short term rentals - this is a growing epidemic in the industry and you don't want to face the fines and have your strategy completely changed

Good luck with the search. Something will come up if you look long and hard.

Your STR properties don't have to be vacation rentals. I have 24 houses and apartments, 84 beds total; and 98% of my renters are petrochemical refinery contractors. The guys you see working on the large erections of steel at such a facility. The other 2% of my renters are college students at a summer volleyball camp, a couple whose house burned down and their insurance company is putting them up, or other travelling workers.

Find a small town with a large industry, there will always be traveling workers employed there.

I always recommend my Airbnb investment properties students to select the right location based on rules that belong to the hospitality business. In addition, it's key to use financial analysis that belong to short-term rentals (not traditional real estate). The numbers used for such calculator are more accurate as Airbnb has a lot of data points to provide!

@Melissa M.

I think a good starting point of your analysis of various locations for your short term rental should involve looking at short term rentals currently being rented in the various locations on Airbnb, HomeAway/VRBO, TripAdvisor/FlipKey, etc.  Look at the nightly rates and look at the calendar for each property. You will find which areas have the best potential from a rental income standpoint. 
One note: Pay special attention to the short term rentals that are doing well in each area. Analyze why they are doing better than the others. You will want to emulate them. In my area around Disney World, the ones that rent the most with the highest nightly rates are generally the ones that are either new or upgraded offering a lot of fun amenities like themed kids bedrooms, video games, game rooms and movie theaters. 
With this information, you can then proceed with isolating the best property for you by looking at the purchase prices of homes for sale, upgrade costs (if applicable), taxes, property managers, etc.
Good luck with your search.

Count the costs. 

You can read hundreds of posts about how much money people are making with short-term rentals but they rarely include all the expenses, including their own time. I've managed 70 vacation rentals and over 300 long-term and in almost every instance, the long-term rental brings in more money with a lot less effort and start-up costs.

Be honest with your evaluation, count all expenses, and then compare the two and see which one works for you and the market you invest in.

@Chai Xiong are you STR in Orlando area? What makes you love it more than you SFR?

@Nathan G. when you say long term rentals...are you referring to rentals for workers that have to stay in the area for extended times, or executives maybe, insurance claims? What did your primary renter look like?

@Jessica Wygal the definition of "short-term" is less than 30 days. The definition of "long-term" is 30 days or more.

I owned a company that managed 70 short-term rentals and my current company manages 300 long-term rentals. My long-term rentals are typically a one-year lease.

@Melissa M. my one piece of advice would be to run the numbers as if it were a long term rental and make sure the numbers work in that scenario. If running an STR isn't for you, you will have a sound long term investment to fall back on.

@Melissa M.

@Ryan Blake and @Tyler Work both had great points.

I ALWAYS let people know that the first thing you want to do is--make sure it's legal. If you are investing in this, you want to make sure you investment lasts.

Tyler also said something that my wife and I always use when evaluating our Vacation Rentals. If we HAD to put a long term tenant in there--could we break even. You always need a back up plan. 

@Melissa M.    I love the idea of vacation rentals.  I just returned from Nags Head, NC 3 weeks ago and my family rented an 8 bedroom 8 bath house on the beach. Each family split the cost of the $6000 per week price tag, the house is maintained by a local Real Estate company and they take care of everything. You make the reservation through them and they have a cleaning company that comes in on Sunday when the tenant leaves and they have about 5 hours to get it ready for the next group. As I was walking up and down the beach during the week, all I could think about was how much I'd love to own one of these houses. I'd carve out however much time my family wanted to spend there and rent it out every other week of the year. We went the last week of May and the rental agent told us the very next week the price goes to $9000 per week through the summer. Obviously, I don't know if the owner has a mortgage but I did look up the taxes and they are $7000 a year. I didn't think that was bad for oceanfront property. If you can do it go for it!!!

@Melissa M. The hard part of receiving input on STRs is everyone's market is different. Some markets the STR location might be based off an attraction (Disney/Beach) other markets is based off a view or an experience getaway. In my market a 2-bed STR could gross $10K-$75K based on location and views. My 2-Bed is set to gross $57K this year and Net $32K (after paying mortgage), but change to a location down the road with no view the numbers could easily look like $20K gross and a net of break even or loss. It also depends on amenities, quality of property, cleanliness, number of 5-star reviews and other things. The more reviews the more you charge. Investors must do more research in selecting STRs, but with proper research and patience it is well worth the time. Another key for me, currently, is self-managing as it provides quality control and more profits.

@Christi Hawkins Nags Head is wonderful. After living in NC for the last four years before moving to West Coast, that was one of my favorite beaches out of NC's many amazing choices. The thing you have to remember is they are VERY seasonal. When it gets cold, it is a ghost town. They even had over a foot of snow at one point this winter (not exactly a selling point for beach front property). If you have enough financial cushion or portfolio that can cover you through the dry times, it would be nice. Definitely wouldn't go about it as a primary source, however.

@Jonathan Moomey    a foot of snow WHAT!!! I'd still take a foot of snow at the beach than 6 months of it in Ohio. Totally agree not a primary source and probably a pipe dream on my part. We went there last year and this year I finally discovered there are so many things to do in addition to laying out on the beach. I"m amazed at how much that area has to offer. I"m ready to move down there right now, obviously I couldn't afford to live on the beach but I'd be happy to start out small within walking, biking or driving distance and go from there. I've been doing some research and apparently the locals even avoid the beach side during tourist season and I've fallen in love with the little town called Duck, NC or even Corolla where you need a 4x4 to get there

@Melissa M. Hi Melissa.  If you are considering investing in a Vacation Rental property on the Outer Banks of NC, you will certainly want to account for increased insurance costs, Wind & Hail insurance is extremely expensive here, Flood Insurance if in an AE Zone, and approximately 17% property management fees to handle your bookings/cleanings, etc.  For example, I have a 3/2 in the west side of Kill Devil Hills as my primary residence in an AE flood zone, and I pay roughly $4k per year for insurance.  This cost would likely be higher for larger properties that are closer to the ocean and not owner occupied.   Maintenance costs will also be higher here due to the salt contamination.  HVAC units typically last less than 10 years, anything made of metal will corrode, and the salt buildup will require regular cleaning of windows, exterior siding, etc.  I am not trying to scare you away, my wife and I invest here on the OBX, but I didn't want you to get swept away by the allure of high rental rates without considering the other side of the equation.  Picking up shoulder season bookings will definitely help your revenue but you will need to have a unique property or creative marketing to stand out from the crowds of empty houses during the off season.  The rental season here is about 16 weeks long, and if you are lucky you can pick up an extra couple of weeks on the front end and back end of the season at discounted rates.

I have noticed over the last several years here that AirBnB is gaining a lot of traction and the number of properties offered thru AirBnB is increasing at a staggering number on the OBX.  If you can link up with a good cleaning company, a reliable maintenance/handyman, and have some local contacts to keep an eye on the property, you may want to consider AirBnB to increase the amount of revenue that you get to keep.  Another consideration here on the OBX is the local occupancy taxes, so factor in at least 12.5% of your revenue being set aside for local and state occupancy taxes.  If you are seriously considering a vacation rental on the OBX, please feel free to reach out and I will give you some insight on which towns attract the types of tenants/vacationers that you would want to target.  Good luck in your search. 

As having 13 Vacation rental units on the SouthWest Coast of Florida , walking distance to the beach, I will have to say we love it and it so far has been very profitable.

I have a couple of prerequisites when looking to purchase a property to use as a vacation rental property .

One, is the area acceptable for vacation rental properties ? Zoning or local government allows 

Two, if the vacation rental market were to dry up, could you pay the mortgage and bills with a long term rental/example, here on the beach during season (winter) 1 bedroom units are bring in $3500 a month, 2 bedroom units upwards of $4500 a month so lets just say you have a 2 bedroom house that has a mortgage of say $1800 a month, you can do very well as a vacation rental. But as a long term rental unit the local rental economy can only handle rents in the neighborhood of $1000 to $1200 a month. No high paying jobs close to the beach, not like Orlando.

This is the main reason I stick to Multi family units, my 13 units are divided into 2 Quadraplexes, and 1 Five Plex which greatly brings down the price of each unit and my mortgages could be covered with long term renters in the $1000 to $1200 range if need be.