Any luck with vacation rentals?

7 Replies

I tried searching for posts on vacation rentals so forgive me if this is redundant...the only thing to pop up was a blog from 5 years ago and vacation rental apps have come a long way since then.  


My wife and I are getting ready to buy the next rental and the only small multi units that pencil out are in war zones. We want a place we can manage ourselves and put some sweat equity into so out of state investing is out and we're not looking for syndication or REITs. The last option I can think (outside of sending mailers to distressed homes) is buying a single family home in one of the nearby tourist destinations. At first blush it looks like a $290k asking price home would demand $179-250 per night and the season is most of the year. We'd probably see dips in early spring and late fall as most people would be looking for fun on the lake or skiing (both near by the subject property).

My big questions to anyone with short term vacation rentals are:

1. How big a bite does AirBNB (vrbo, whoever you use) take out your income?

2. In a mountain town what does your vacancy look like?  I imagine in the summer and winter most weekends will be booked along with major holidays in between, but do you get any action in the off season?

3. I imagine the stuff I need to worry about on a vacation rental is different than a standard residential rental.  Insurance, permitting, absentee managing (I'm not going to be there for every flip)...anything I'm missing?

4. The long term plan for this would be to rent it for a few years, make some improvements, have some fun with my family when the unit is not booked and a few years out 1031 to something more exciting.  Does this process work the same on short term rentals as it does long term rentals?

Thanks in advance for any advice.

1. How big a bite does AirBNB (vrbo, whoever you use) take out your income?

--They will typically take 3-5% of your income, as well as charge a guest fee of 5-10%.

2. In a mountain town what does your vacancy look like? I imagine in the summer and winter most weekends will be booked along with major holidays in between, but do you get any action in the off season?

--Depends on the mountain town.  When priced and marketed right, most properly run places keep busy in the off-season.

3. I imagine the stuff I need to worry about on a vacation rental is different than a standard residential rental. Insurance, permitting, absentee managing (I'm not going to be there for every flip)...anything I'm missing?

--Utilities, guest communication, cleaning, furnishing, stocking staples, quality control as a start, there's a lot!

4. The long term plan for this would be to rent it for a few years, make some improvements, have some fun with my family when the unit is not booked and a few years out 1031 to something more exciting. Does this process work the same on short term rentals as it does long term rentals?

--No reason a 1031 won't work similarly here.

Hey neighbor @Andrew Jones !  :) 

I have owned 2 successful VR's in Tahoe if you ever want to chat further. In the meantime check out my BP blog articles on my experiences here for some high level info:   https://www.biggerpockets.com/blogs/10042/

Here are my quick answers to your questions: 

1. Don't worry about these costs per se, it's the entire Op Ex model of STR's that is the silent killer, you have to pay for EVERYTHING including these platforms but also furniture, electricity, gas, pool, landscaping, etc. In fact the only costs you actually pass on to the guests (other than booking fee) is Housekeeping and TOT (transient occupancy tax). Op Ex ratios for STRs run between 50-70% sometimes. If you are not going to self manage, you can expect to pay anywhere from 15-20% more there.

2. Tahoe is dual season, my best years were just over 200 nights a year and my worst is around 170. 

3. Yes, permitting and STR regulations are the first thing you need to look at the county, city levels. Then when shopping remember HOA's have their own rules. Get liability umbrella for insurance and you also get insurance from some of the booking platforms.

4. 1031's work on STRs.

Cheers!

I have a VHR in South Lake Tahoe, which has been very successful.  The first thing you have to understand is that you are in the HOSPITALITY business, which is different from long term rentals.  You have to stock the kitchen with utensils and the bathrooms with towels.  You are not renting to a tenant, you are catering to a guest.   You want to keep up the interior and exterior as pristine as you would expect a Hilton Hotel to be, while maintaining an aura of a friendly home.

Being cheap is a sure way to failure.  Don't even consider bringing up your old pots and pans to your VHR.  The new stuff goes to cater your guests, when they get old you bring those home and replace them with new.

Let nothing be broken or worn in your VHR.  Guests will notice.