I am looking to start a vacation rental business and would like a few suggestions of growing markets ( Preferable beachfront) that have a growing job and employment market to help with appreciation on my assets . Could anyone give me some suggestions for this in the southeast United States
The Florida panhandle as well as the Smoky Mountain market are 2 of the best vacation rental markets in the country. However, true vacation rental markets don’t usually have a lot of jobs and industrial growth, they are mostly tourism driven.
As many major metropolitan areas continue to impose anti-short term rental regulations, property values in profitable true vacation rental markets will continue to rise, as it would be detrimental to the economies in those areas to impose any anti-STR regulations, so STR investors can safely move their investment dollars there.
With that being said, it’s wisest to bet on cash-flow, and just look at appreciation as a bonus. Betting on appreciation is speculation, and you don’t want to build an entire business on speculation.
@Avery Carl Thank you for the comment. Would Pensacola, Mexico Beach(although many are damaged) and Orange Beach be a good area to start in your opinion?
Hi John. We are realtors based in Orange Beach (and formerly from Atlanta) and think Orange Beach has the most potential of the three you mentioned. Orange Beach has a really strong tourism draw for the beautiful beaches & area attractions without the hustle & bustle of a city like Pensacola. As you mentioned, Mexico Beach is still rebuilding. We have been investing in short-term rentals in our area for about 10 years & happy to share what we have learned! One of the biggest advantages of the Alabama panhandle is that you can usually secure a smaller down payment option to reduce your initial cash flow. Florida is typically 5-10% higher down payment than our area. Feel free to reach out to me & I can walk you through some of the numbers! Our coastal appreciation numbers for last year were around 15%. While I agree with Avery about appreciation being speculative in nature, it can't hurt to invest in an area that is thriving so well as long as the cash flow makes senses as well!
We live in TX and have two beach front condos in AL. A 1B1B in Orange Beach and a 3B3B in Gulf Shores. Both have done well with cash flow and appreciation. Not all properties can generate the same rent roll and there can be a big difference in purchase price between one building to the next. A local property manager can offer the advice on which places pull the best rent to price ratio, if you are looking at it from a business only standpoint. We use Kaiser as our local property manager. I take my family to these condos on the beach, so there was a little more emotion in the decision that just cash flow numbers.
All that being said, I started to invest in small multifamlies because I didn't want all my eggs in one basket on the coast, that could be impacted by a hurricane. Insurance can cover lost rentals due to a storm, but a major hurricane could really impact cash flow.
Originally posted by @Candace Pfab :
One of the biggest advantages of the Alabama panhandle is that you can usually secure a smaller down payment option to reduce your initial cash flow. Florida is typically 5-10% higher down payment than our area.
I think the biggest advantage AL has over FL is property taxes (almost triple). I haven't purchased in FL, but why would the state have any bearing on the percentage of the down payment. Some banks allow 5/10/15% on rental properties or second home, if you're willing to pay PMI, but why would a state require more than a bank would allow? Many condos on the beach would require a jumbo mortgage, which is driving you towards 25% down.
Everyone and their brother is doing vacation rentals, it seems. Something else that's similarly lucrative is doing STRs for working people. My little town has a high crime, drug and unemployment rate. Nobody takes a vacation here. But there is petrochemical refinery. There is a constant influx and outflow of contractors coming here to do short term specialty jobs. I rent to them. Their needs are pretty simple.
A place to drink beer after work.
A place to cook food.
A place to do laundry.
A place to take a shower.
A place to sleep.
A place with an abundance of scantily clad women artwork.
@Paul Sandhu Nice point, I believe everyone and their brother is doing the vacation rentals for a reason tho; do you not think so?
@John L. Knight Supply and demand. With an increase in Supply and steady demand, the price of vacation rentals will go down. My market is sort of a hybrid duopoly. People can rent from me and share a house with their coworkers, or they can pay the same amount and share a motel room. A motel doesn't allow/provide the food and laundry as well as I do. And who really wants to sit in a motel room and drink beer when you can sit in a living room surrounded by scantily clad women and drink beer.
@Paul Sandhu Are you worried about the local community dragging down your property value considering the conditions are not the best?
Hi Ross. It's the trend in lending practices driving the down payment on beach condos which are the best choice for short-term rentals. As I am sure you know, there is a laundry list of items that lenders look for including litigation, strength of the management, budgeting, etc. The feedback from our lender partners is that in general, they are more comfortable taking the lower down payments on some of the projects in our area. 10% is the lowest I have seen in the condo market in this area & the condo project has to be in ideal shape in all of those areas, as well as the borrower. 20-25% is the norm and up to 30% on some of the riskier projects/applicants. And we still have lots of options below jumbo in this area as well! Yes, taxes are also a challenge on the FL side! I hope that helps to clarify :)
@John L. Knight After Amazon.com left and we had a flood, a lot of people left town. People with mortgages let their banks have their house when they left town. We just buy bank foreclosures, around 25 cents on the dollar. $6-$10 per square foot for a 3BR house with CH/A. I really wish the property value would go down. The county appraiser does not recognize bank foreclosures as a legit sale. They go by the previous sale, which is around 4x our purchase price.
My phone reads out my email subject. Whenever you mention me it says "John 50th Knight mentioned you"
@John L. Knight I'm in Fort Walton Beach/Destin on the Panhandle of Florida. I own, manage and sell vacation rental properties here, so yes, I am very partial, lol. I've never been to the Alabama coast, so can't really give any opinion there. I love the beaches here and so do the crowds that keep our demand and occupancy rates high, lol. Destin is somewhat overpriced in way of property costs vs rental income, but I think Fort Walton/Okaloosa Island and also Navarre/Gulf Breeze are really good areas to consider.
The main thing I would like to add is that managing vacation rentals is different from long-term, passive-income rentals. With vacation rentals you are not selling the living space only, but you are selling a "vacation experience". I would suggest you visit all the places you are considering, don't get frightened by HOA fees (they often cover the expenses of income-generating amenities such as pools, resort features, etc), don't get frightened by dated decor or appliances (those can be changed) and go by what you like (you will have to like it to sell it to others) and by what is generating consistent and proven demand. The Gulf Coast is unique in the fact that it is "drivable" for families from the Southern and central states and the beaches are world class amazing.
Buy where you personally would like to go. My two cents :-)
@Villy Ellinger thank you for the advice. I will do just that
personally, I wouldn't touch the Southeast coast. With climate change, the storms are going to become more intense and more frequent. I'm not interested in a property where there's a good chance it eventually gets knocked over and tourism being destroyed for a while.
I am in a small tourist town. Affordable housing, no hurricanes, river but no flooding, good revenue. If southeast, I would have been in the smokies
I would love some information let’s connect
Sent you a colleague request! Always happy to help our fellow investors!
I'll second what some other people have also said. I'm an investor and realtor in the Gulf Coast (Destin Area primarily) my STR had done very well, even though I bought it at retail. As long as you can cash flow, the you are sitting pretty.
I self-manage, which is why it's easier to cash flow. I am dedicated to my property and save myself the 20-25% in management fees around here. Best of luck!!
@John L. Knight this isn’t in the geography you asked for but you should look into Santa Barbara, CA
Your name reminds me of Robert "Mutt" Lange (AC/DC Def Leppard etc.).
What all do you do and not do when you self manage? I have 23 STRs in my town and self management is a full time job 24/7. Plus I have a tool truck with spare parts for most appliances. If I don't have a replacement part, I'll buy 3. One for the repair, one for backup, and one for emergency repair until 3 more I order arrive. I try to keep small hand tools at most properties.
@Paul Sandhu - 😂 I appreciate the shout out, lol. I wish I was as cool as Mutt. I only fly fighter jets when I'm not wheeling and dealing real estate.
I have a partnership, where I manage the online customer interaction. My partner runs most of the 'boots on the ground' requirements. I also have a personal assistant, who is absolutely amazing. She is the gap fill for us for sure. I'm trying to grow her into being more of a manager slowly as we grow and learn.
@John L. Knight I would before anything and consider the MOST IMPORTANT aspect not touched upon yet here , Is to confirm if STR legal in that town. Most cities and counties are fine with airbnb but many small beach towns will come down hard once the first jackass neighbor starts complaining about noise or parking. If you still want to chance to make sure the numbers workin as LTR as well just in case the nasty letter makes it to your mailbox one day ... I believe eventually most towns & cities will allow STR but until than have a Backup plan
Secondly aside from people driving as someone mentioned I would consider proximity to a major airport. More flights bring more people.
Lastly I would start comparing purchase prices with monthly expectations utilizing sites like Airdna which , I believe if you are a pro member there is a code in Bigger pockets resources fo save a few dollars a month for their data. Or just Pop in some dates and locations on comparable units through Airbnb and VRBO for free . See what people are asking per night and how that stacks ups against your asking price in the area.
@John L. Knight Pensacola Florida
You are absolutely correct about being mindful of the potential for STR rental restrictions. Orange Beach & neighboring Gulf Shores AL has already been through that cycle where areas outside of the primary beach zone originally designed to accommodate primary residences are now restricted, but the major tourist areas closest to the beach are exempt, creating a balance for residents & the visitors which are so vital to our local economy! We find that most visitors prefer to drive so that they can bring all their gear, but we are only 30 minutes from Pensacola airport for those that want to fly!
@John L. Knight I second the Smoky Mountain region on Tennessee. As others have stated, vacation rental markets almost by definition rely on tourism for their primary local revenue, but the upside of that is those regions have an incentive to maintain friendly legislation towards vacation rentals, and as @Avery Carl said, the area has seen steady appreciation as investors have shifted their attention there.
The area also has the benefit of four mild seasons, with limited exposure to natural disasters, and property costs are low relative to many other markets, which makes for excellent cash flow opportunities.