Vacation Rentals Rents Verification?

Question

Hi there --

We're considering purchasing a vacation rental in coastal Texas as an investment property. Question: what is the best way to estimate daily rent rates and vacancy numbers?

I suppose I can ask the seller for a rent schedule - but they could provide me with anything they want.

Julie McCoy · Answer

For the record, I'm not sharing my tax returns with any potential buyer.  Some property sellers will provide a rental history (which may or may not have any detail), some will not.

Past performance is not an indication of future returns - for better or worse!  Presentation and management style matters A LOT, in my market there's plenty of rental histories that are low on properties that can and will perform very well when managed properly.

Check out comparable properties and see what their rates are at for different seasons.  I agree that vacancy is harder to estimate, and talking to local PM or two like @Nathan G. suggested can give you a solid bird's eye view of the market.

Simon Collins · Answer

Your responses to every thread always make me laugh :)

Collin Hays · Answer

Tax returns

Nathan Gesner · Answer

Their tax returns would help, particularly if prepared by a CPA.

You could also talk to some property managers in the area. Let them know you're shopping for a vacation rental and see if they have any for sale. If so, they should be pretty accurate at providing you with a forecast of rental income, estimated vacancy rates, etc.

You should be able to have a pretty good understanding of the market with just a few hours a night over a one-week period.

Paul Sandhu · Answer

You probably won't be able to do this, but shoot for grossing your purchase price of the property with 6 months of gross rent.  That's the rent you collect, and not including any expenses such as utilities, furniture, supplies, cleaning, etc.  If you can get 6 months of rent in 12 months (50% occupancy), you are doing good.  I know this guy in a depressed refinery town that does it by renting his STRs to contractors.  They are welders, pipefitters, boilermakers and other such ruffians.  Big burly guys that drive jacked up 4x4s, chew tobacco for breakfast and have a scorpion neck tat.

Paul Sandhu · Answer

If someone screws me over on a real estate transaction due to misrepresentation or withholding pertinent information; someone will make the transaction right (broken knees, cut off digits, cut off ear or nose, cut off testicles is the last option)

Simon Collins · Answer

I will say this being that I am a CPA.  Tax returns might be the default answer and should be a good one to verify IF the seller actually gave the CPA the correct numbers to put into his/her return.

I have heard (not experienced) of folks who know they will be selling properties (especially commercial properties) not claim all their expenses on their return for a few years just so they can over state income.  The idea is the little amount extra they pay in taxes doesn’t compare to how much more the property is worth when valuing the cap rate& purchase price.

now the same can be said of income....overstate the income to make it look more profitable and pay a little more in taxes but make much more on the sale.it’s shady but it can EASILY happen so just wanted to throw this out there since I always see everyone “default “to verifying everything through a tax return.

me personally...I have audited many businesses and when I am going to purchase a property that is just what I am going to do.

First and foremost I want bank statements to verify everything.  Between that and good estimates (Conservative) I don’t need a tax return.

AP Horvath · Answer

Anyone know what's considered a good cap rate for a vacation rental (that our family would use too)?

AP Horvath · Answer

Rental rates, I think, are fairly easy to estimate -- but vacancies seem harder.

Vacation Rentals Rents Verification?

Most Popular Reply