Beginning investors in vacation rental property

10 Replies

I am mainly looking for advice in financing. We have limited money for down payments, but we have excellent credit ratings. The market we are looking in is very expensive but we have been vacationing there since the late 1990's, Breckenridge, CO.

I was looking at vacation condos for investment also. I looked at three different properties, ran the numbers and then couldn't figure out how I could do anything but break-even. 

Denis, was you looking in Breckenridge also?  Breck has summer and winter activities that make the area attractive all year long. But the "glut" of condos is what we wonder about - is there enough renters for all of the property available.

With no money to invest, yourself, you'll have difficulty. Plan on 20% down, the cost for furnishings, marketing, attorney, accountant, utilities, etc. You'll also need money to carry yourself through non-peak seasons when rent is not being collected and you've got utilities that are still running. 

I would recommend looking at vacation properties that are more reasonably priced as opposed to something in Breckenridge. Start small, learn the game and then move to resort properties. 

Hi Vicky!  @Steve Dove is right in saying you need to plan for at least 20% DP.

Have you ever considered using a manager? My company works with vacation home owners to get them a net guaranteed income offer so they don't have the uncertainty that can come with renting out VRs.

Let me know if you'd like more info :) 

@Vicky Seibel

Welcome to BP!  I'm closing on my 1st VR (vacation rental) in 2 wks.  We were able to put 10% down with a smaller local bank that we've used to buy a long term rental and a fix & flip (commercial loans).  They have let us use equity in some of our other properties (cross collateralize) in lieu of the standard 20% down on other deals.  It helps if you have a previous relationship with them and we went in with a business plan for the VR.

Perhaps, if you have equity in your rental or personal home, they may allow less down payment.  Or, try to find a partner?  Just remember, you'll have to come up with a fair amount of money to furnish the VR.

If you are buying mostly for personal use and renting to subsidize it is one thing or as a business is another.

Check out the forum here on BP about VR. 

Thanks for your advice Kelly! We do have equity in both houses and a relationship with a bank, between us and both our kids we have given them a lot of great business!  

Hi Vicky,
Welcome to BP! I would say that you are normally going to find a very difficult time finding financing to buy vacation rental properties as investments - especially before you have any demonstrated experience - though it appears that you have already found that to be the case. What is it that draws you to the idea? Are you looking for something that you can utilize for part of the year, and rent out the remainder? If you´re just looking for a property for yourself and are looking to offset some or all of the ownership cost, then the cost/benefit is different. If not, and you´re strictly looking for an investment, you´re almost definitely going to be disappointed (that is, unless you develop a portfolio of several STRs in the same location and reap the benefits of shared operational costs). 

That is, in fact, exactly how my company operates. We manage several properties as vacation rentals, though none of these owners bought them for that purpose (either they were an early primary residence, or were purchased to be long-term-rentals and they find better returns working with us). Because we oversee multiple properties (and margins are significantly different in Seville than they would be in Breckenridge), these owners are able to benefit from those shared operational costs. The reason I emphasize the difference in margins is because this concept would apply to other VR management companies, but they can charge up to 40% or more of gross revenues - that eats up your cash flow very quickly.

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