Any Vacation Rental Owners (with Multiple Units) Out There?

40 Replies

Hey Brandon,

I've owned two vacation rental condos in Waikiki since 2011 and have had a great experience. In fact, I'm in the process of pulling equity out of those condos to buy a third! No, I don't have the third picked out yet. I'm hunting around for good deals in Waikiki.

Beach rentals in the Mid-Atlantic area is tough because of the short season for rentals.  The season is essentially Memorial Day to Labor Day, 12 short weeks.  If you rent by the week, then you need to make 12 months of income in those 12 weeks, because there is very little, if any income in the rest of the 40 weeks.  Even the 12 weeks has gotten abbreviated because of schools starting before Labor Day.  It used to be that the first day of elementary, middle and high school used to be the day after Labor Day.  Now many schools start before Labor Day and certain activities start even before the school starts like football practice, band practice, and other sports and activities.  This results in a tail off of rental business in the last 2 weeks of August.  Many owners seldom fill all 12 weeks, but use the vacant weeks for their personal use.

At Ocean City, Maryland, the only ocean front town in the state, the high season population can be as high as 400,000, but the winter population dips to only 7,000.  Big difference!  

As an alternative to weekly rental, an owner can rent property on a yearly basis, primarily to year run residents.  The rent for the 12 month yearly leased rentals is surprisingly to the same amount as the 12 weekly rental schedule.  

Property management fees tend to be higher than more inland areas often in the 12% range.  In addition there are local taxes on gross rental income of as much as 5%.  Right there the owner is paying about 17% right off the top before other expenses.

Some owners self manage even from a distance of hundreds of miles, primarily to save on the property management fees.

The 1987 Federal Tax revisions gutted the viability of resort rental properties by limiting losses.  As a result the prices of properties stagnated for about 10 years.  You could have bought a property for the same price for a decade.  The 1997 Federal Tax revisions and an renewed real estate market increased prices for the next decade until 2008.  Everybody knows what happened in 2008 and it had a more drastic effect on resort properties as they are more of a discretionary purchase.  Prices declined as days on market increased.

Many of the beach units are condos and there have been many discussions about the + & - of condo ownership/rentals.  Its nice to have maintenance, amenities and some utilities paid, but it doesn't come cheap and affects your bottom line.

Insurance premiums are much higher at beach properties due to natural forces like wind, rain, hurricanes and flooding.  At some properties flood insurance is required even on the 7th floor.  It the water level ever reaches the 7th floor, its time to man the ark!  But the insurance companies feel that flying debris can puncture the windows and glass doors and cause water damage even on elevated floors.  Even with that risk very few beach places have hurricane shutters in the Mid-Atlantic. 

At resort areas with a longer season, including year round, the income would be higher and potential profits also.  But even in resort areas without season weather changes, there still are high seasons and low seasons.  In the Caribbean, the weather is nice year round but the winter is the high season and the summer is the slow season.  Occupancy in the summer at Caribbean places can be as low as 10%, even with reduced rates.

But in the Mid-Atlantic with the short season, high management, high taxes, tax loss limitations, condo fees and high insurance premiums; its difficult to make a profit.  Many people buy with the wild eyed allure of owning a beach property and being able to use it themselves and get some rental income.  That seems to be the majority of owners.  Essentially they're in it for the personal use and even though they may make some rental income to offset some expenses, they still don't make a profit overall.

@Brandon Turner  

I guess I wasn't too brief, sorry.

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Hi - 

We own 3 vacation rentals in the Adirondack Mts and are looking for more up there as well as in warmer climate - southern east coast and/or caribbean.  

Piseco Lake Cabin   http://www.homeaway.com/vacation-rental/p3165887

Lake Algonquin “Trailer Liscious”    http://www.homeaway.com/vacation-rental/p189448

Lake Algonquin Farmhouse   http://www.homeaway.com/vacation-rental/p353641

I have also been managing the reservations for multiple vacation rental houses, condos and apartment buildings in FL and NYC for the past 9 years. Love the business, but growing restrictions for VR in NYC and FL have been an issue. Other than that, has been very profitable and fun. 

Originally posted by @Maura Paler :

.....growing restrictions for VR in NYC and FL have been an issue. Other than that, has been very profitable and fun. 

 Hi Maura,

When you say "growing restrictions", what do you mean by that?

I also see that you say it is profitable.  I am in Orlando, FL and there seems like a lot of competition here due to Disney acting as an anchor (this is only my opinion from what i have seen on the surface and so could be wrong).  With the winter months being slow, along with the competition, how profitable is it? If you have numbers to put down, that would be very helpful.

I, on the other hand, am also looking into providing for the "winter birds".  It is a growing market and will be so for the next 12-20 years here in FL (unless something drastic happens).  It is a very unique niche, which I am researching.  Some don't survive it, but those that do, seem to fare very well.

Ty.

@Brandon Turner  I don't have vacation rentals. However; I have posted on the forums trying to find good information for data (vacancy rates, # of rentals in an area, pricing, etc.) However; there doesn't seem to be anyplace to find that easily. The reason I was looking was due to the fact we are building in coastal Orange County, CA which is prime for Vacation Rentals, and have been contacted by those considering buying our house for VR. 

If you do a search on "vacation rentals" you'll see alot of threads. Also, some of those that have chimed in are @Jon Klaus   @Ann Watkins   

Here's the link to one of the threads Vacation Rental Data Thread

Maybe a new forum for Vacation Rentals :) It's actually quite a huge niche if you look at Homeaway, Airbnb, etc. Looking forward to your article! 

Hi Brandon and happy new year to everybody  , i?am  a property manager on the island of Mykonos in Greece. I manage properties from small luxury apartments with one  bedroom to Villas 1200 sqm. Some they have their own beaches and heliport . From my experience I gained  make me more flexible   because other requirements is the one who pays 200 € a day ,and another client who gives 7,000 € a day, others who have come for a relaxing holiday and another one who has the mood for parties and dance (since Mykonos is known for the fun of it) Of course there is always a smile and service whatever group is .

The Last years the only real estate  in Greece that goes really well is the market of Mykonos. Greek and foreign buying houses and villas in order to rent them by the day, some they  decorated  with designers and convert them to 5 star villas . The yields to succeed is impressive. and the off season days have not booked they enjoy themselves . 

 I had been in difficult cases when i was rent two sea front apartments , the one next to the other . In the one rented house lived four young Italians who came for fun and to the next one Russian family who had come for a relaxing holiday discovering the beauties of the island. The Italians when we were returning late at night shouting and dance disturb their neighbours , of course , I became hard with Italian and so things were equilibrated.

I will tell you about two more interesting cases were  last summer. One was with customers who had come to Mykonos for a party festival happens every year for five days .  The one of them  wanted  to go for offshore fishing , and decided to rent a boat and then after some photographs  I showed them , resulted in renting a Yacht  65 feet . I felt a surprise that they rented a Yacht 3500 euros a day just to go for  fishing since the majority of my customers i gave and  organize them they go to various beaches and other islands according to their wishes. Then my surprise was double when they came to the port to see the boat , but the yacht would enter to the port  in 20 min, and could not wait because they would lose the party that  happen in a club so they asked me how looks like , I showed a similar yacht and explain theirs  is a little better with a jet ski , and immediately agreement  and booked for the next day. Of course not caught a fish but was the best trip because i was knowing theirs desires and the captain went them to the beach of Super Paradise where  i booked a table  in one of the best restaurant beach bar.

The other case where my client asked what  to suggest him to make a romantic dinner in the villa , so I arranged a gourmet meal with chef, small candles floating in the pool and saxophone player playing  jazz music .

Hi Brandon-

We turned our primary residence in Columbus, OH into a vacation rental about a year ago kind of by accident. At the beginning of 2014, we started to focus on reducing our student loan debt, and in because of that, wanted to increase our income to speed up the process. We decided to list our house on Airbnb and Homeaway/VRBO, thinking that if we could make a little bit each month, it would be an easy way to make extra cash with a small time commitment. Well, our gross earnings ended up averaging 4x our monthly mortgage payment (including PMI, property taxes, and insurance). We were shocked that there was such a steady stream of visitors in Columbus! After hearing guests' feedback, we know we can attribute most of our beginners' success to the location of the house (walking distance to shops, restaurants, Ohio State, convention center, etc.) coupled with our décor choices.

In terms of expenses above and beyond a normal rental, the highest are utilities (gas, water, electric) and cable, which run us roughly $200-450/month depending on the time of year.  Smaller costs are things like buying new towels/sheets every 4-6 months, and getting small welcome gifts for our guests.  In terms of cleaning, we have tried to do the majority of it ourselves, although we did hire someone to help us in the summer when we got really busy.

For the first 6-8 months of doing this, we would stay in hotels or with family when guests came.  We don't have children yet so we had that flexibility, and the bookings were not frequent enough to justify buying another place.  By spring/summer when things really picked up, staying in hotels started to get difficult, so we bought a duplex in an up and coming neighborhood that we're fixing up.  We'll live on one side and rent out the other (standard rental, as the area most likely wouldn't be attracting vacationers) until our next opportunity presents itself.

A lot of people told us that we were crazy for using our home as a vacation rental.  But to us, it was such a [relatively] easy way to make extra cash compared to getting a second job.  And what's interesting is that we've found 99% of our guests to be super respectful of the house.  We're very clear from the get-go about our house rules, so we tend to attract guests who are on the same page as us.

We hope to increase our earnings in 2015, now that we have a solid set of reviews and have had some experience with it.

Originally posted by @Sam Alpha :
Originally posted by @Maura Paler:

.....growing restrictions for VR in NYC and FL have been an issue. Other than that, has been very profitable and fun. 

 Hi Maura,

When you say "growing restrictions", what do you mean by that?

I also see that you say it is profitable.  I am in Orlando, FL and there seems like a lot of competition here due to Disney acting as an anchor (this is only my opinion from what i have seen on the surface and so could be wrong).  With the winter months being slow, along with the competition, how profitable is it? If you have numbers to put down, that would be very helpful.

I, on the other hand, am also looking into providing for the "winter birds".  It is a growing market and will be so for the next 12-20 years here in FL (unless something drastic happens).  It is a very unique niche, which I am researching.  Some don't survive it, but those that do, seem to fare very well.

Ty.

 Hi Ty - 

Many areas, including Miami, Boca Raton and NYC have new laws that state owners cannot rent their property by the week. These laws are enforced, they knock on doors and ask tenants for their leases. I run a South Beach 8 unit building that has been renting by the week for 10 years, last year they shut us down due to these new regulations. We now can rent only monthly - much less profitable. 4 studios, 4 one beds weekly 2012 grossed $262K. Monthly 2014 was $170K. Big Bummer. 

I know people who own Disney VR's - they do OK because they bought low market - but that area is flooded with competition. 

I am on board with you 100% about the next 10-20 years being a great market for FL, and am headed there this weekend on yet another exploration trip with my husband - this time to Stuart. Looking for an area that we like personally, that has surfing (for the husband), and that we would like to invest in. Open to buy and hold, commercial and VR. 

Good luck - happy to offer ideas and more detailed suggestions if you find something. 

Maura 

Originally posted by @Sam Alpha :
Originally posted by @Maura Paler:

.....growing restrictions for VR in NYC and FL have been an issue. Other than that, has been very profitable and fun. 

 Hi Maura,

When you say "growing restrictions", what do you mean by that?

I also see that you say it is profitable.  I am in Orlando, FL and there seems like a lot of competition here due to Disney acting as an anchor (this is only my opinion from what i have seen on the surface and so could be wrong).  With the winter months being slow, along with the competition, how profitable is it? If you have numbers to put down, that would be very helpful.

I, on the other hand, am also looking into providing for the "winter birds".  It is a growing market and will be so for the next 12-20 years here in FL (unless something drastic happens).  It is a very unique niche, which I am researching.  Some don't survive it, but those that do, seem to fare very well.

Ty.

I think you approach would work, being an Orlando Native (Dr. Phillips) I think finding a house with the appropriate proximity to golf and Disney which when marketed correctly should be able to secure 3-4 months from a snow bird and 2-3 months of summer rentals from families in town for Disney. If you are able to make your year on these 5-7 months everything in addition should be gravy. You'd also be smart to market to local insurance agencies in that area for short term rentals, you can always charge a premium for these months. GL

I spent a few hours last week researching vacation rentals in the Gulf Shores area. There's not much information out there. One of our local investors sold off $2mil worth of his apartment complexes and purchased a $1.3mil vacation rental in Breckenridge. He rents it out 10 months out of the year and uses it the other 2 months himself. He's only owned it a few months, but says that he's going to make more money on that one property than on the 70+ units he had here in town. I don't know his numbers, so I can't back him up. I'd love to learn more!

I own an ocean front vacation rental in San Diego, a house 5 houses off the beach in San Diego (both of those are in Mission Beach) and I'm buying one on the peninsula in Newport Beach (probably a duplex or triplex) this year. 

Hi @Brandon Turner  , I'm so sorry to hear about your flooding. On the positive side, I know you'll get through it and share what you learn in the process.

I'm happy to talk about vacation rentals anytime. I agree with @Karen Margrave  that a Vacation/Short-term Rentals Forum would be timely and useful. The industry has absolutely taken off.

@Maura Paler   how did you come up with Stuart? I learned of it through word of mouth and recently visited. People who know the area call it a best kept secret. Let me know if you want to compare notes.

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We own 3 beach front condos.  One on the west coast and two on the east coast.  We also own 3 others in the Smoky Mountains.

1.  Management runs 30% to 45%.

2.  Occupancy runs at 50% to 60%

3.  There is income tax, property tax, personal property tax, state, county, and city gross receipts tax.  This all varies by state.

4.  Cap. rate of 8%-10% if self managed.  About 1% to 3% if use manager.

5. Our HOA runs $280 to $767 per month.

6.  Last several years appreciation has been high.

We are continuing to buy more.

Hope this helps.

Bill Jacobsen

@Rob Brown   Do you mind sharing how you determine your rental rates, vacancy factors, etc.? We are building a house in San Clemente, which is about a mile from the beach, close to restaurants and the new San Clemente Outlets being built. It will be great for a family home, but we've been contacted by some wanting information on it as a vacation rental. I have no idea how you get those projections!  

We also have 2 condos (1800 sq. ft. each) we will be building, and same thing, except they are a block away from steps that go down to the beach, and there are vacation rentals all around. 

Any insight you have would be great! I think @Brandon Turner would appreciate the info too for his article. (Don't know why I couldn't @mention him) 

Too funny!! Just as I was finishing this I got a call from an agent in Florida wanting to look at the house next week for a Vacation Rental! 

I work with an experienced vacation rental management co, and call other companies to confirm rates when buying a new prop. I wouldn't buy that far from the beach for a vacation rental, in my market 92109 Pacific Beach and Mission Beach vacation rentals are difficult to make work even more than 3 streets from the ocean front. 

Do you mind sharing how you determine your rental rates: Check other similar props on VRBO AIRBNB, management co, etc

Vacancy Factor: I know june july august 10 weeks of summer peak rents is standard in my market and the other 9 mo I figure 85% occupancy (because that is what I have with good management and keeping an eye on rates) 

@Brandon Turner  - My first investment was actually a vacation rental. I now have three lake houses in Northern Michigan that I run as rentals. I've owned single-family rental properties, condos, flipped houses, etc. However, I prefer vacation rentals overall. I have a great set of repeat customers, offer great deals, and love the tax advantages (not subject to passive loss limitations) of a vacation rental, as opposed to a long-term rental. 

My vacation homes are professionally cleaned and maintained on frequent basis, allowing me to address any necessary repairs at the time that they occur. My experience with long term tenants has not always been favorable, whether it is because of late or no rent payments, the way they take care of the properties, etc. With vacation rentals, my guests pay in advance, never establish tenancy, and are usually in and out in a week or less.

The only drawback to a vacation rental is usually the initial costs associated with acquiring one. These homes need to be fully furnished, to include linens, cookware, toiletries, etc. These things add up. In addition, there are marketing costs and usually a great deal of administrative work associated with answering emails, taking phone calls, handling rental agreements, etc.

However, the best part, is that I can use them when they are vacant. I'd be happy to discuss any aspect of the business. My site is: www.upnorthlakehouses.com

-Steve

Originally posted by @Catherine W. :

Hi Brandon-

. . .   We decided to list our house on Airbnb and Homeaway/VRBO,  

I'm curious about your experience with  each site.  I'm in the process of building some Tiny Homes on the beach for vacation rentals and wondering if I should list on all those services or if one is better than the other?

We have 4 units currently in Austin, Texas. We got our start in 2012 much like Catherine did. We were in Colorado for my birthday (Breckenridge as a matter of fact) and on the drive back to Texas my wife said "we can do that"!

So we put together a plan and 10 days later we were renting our primary residence for the SXSW music festival.

We ended up purchasing an RV and initially focused on weekend rentals. So we'd get a paid vacation and used the revenue to fix up the properties and purchase more. This also gave us a place to put our food and belongings when the house was rented. 

The demand was very surprising. We consistently book 200-250 nights per year and cash flow twice as much as we would in a long term rental scenario even after factoring in utilities, cleaning, hotel taxes, and consumables. We have the cost savings of managing them ourselves but we think we get better rates and more occupancy than we would by turning it over to a 3rd party.

Summers are slower in Austin due to the heat, but we stay pretty booked by lowering our prices during those periods.

Austin has expanded the regulations over the past couple of years so we are required to pay a 15% hotel tax on stays less than 30 days and also pay an annual fee for our license which is about $300.

When shopping for a new vacation rental, we use the homeaway and vrbo sites to see what other owners are charging in the neighborhood and how full their calendars are.

We love the business. We've had hundreds of bookings with very little damage to the properties. It's even allowed my wife to retire from her corporate job to handle the rentals and build her real estate business.

Originally posted by @Belinda Lopez :
Originally posted by @Catherine Williamson:

Hi Brandon-

. . .   We decided to list our house on Airbnb and Homeaway/VRBO,  

I'm curious about your experience with  each site.  I'm in the process of building some Tiny Homes on the beach for vacation rentals and wondering if I should list on all those services or if one is better than the other?

Belinda - we've by far gotten the most bookings through HomeAway/VRBO, but have also have gotten a lot from Airbnb.  We had the house on Flip Key for awhile, too, but took it down because we only got phony inquiries.  That's probably just a Columbus thing, though, because I'm pretty sure Flip Key is really popular in a lot of locations. 

I like HomeAway/VRBO best because you can include a rental contract at the time of booking, and I like that I can pay one big booking fee that covers me for a year vs paying per booking (AIrbnb charges 3% to owners I believe).  I saved a lot that way.  It doesn't hurt to try them all in the beginning and see which one you get the most attention from.

On another note, I'm intrigued by the tiny house concept - especially on the beach!  Would love to know how you do with them.

I currently manage 20 vacation properties located at the beach in Delaware and I love it! In 2014, I had around 275 reservations. The potential is huge with vacation homes. I'll give you an example.

Subject property: Located in a remote beach community that has nothing around it. (Nearest store is a 15-20 minute drive). Normally, this would not be my ideal vacation spot, but others like it.

Check out www.vrbo.com/389330

This is a small 2 bedroom, one bath cottage that is located on the beach. Purchased for approximately $250K. The owner stays in the home for three months in the winter, but starting in April, the home is completely booked to November. It produces over $40,000 a year in rental income with less then $10 in expenses per year. Expenses include cleaners, utilities, repairs and property management. Not too bad for a little 2 bedroom cottage.

Of course, not every home can produce these numbers. It really depends on your location, price, if you allow pets, size of the home, how many it can sleep, the community amenities and how you advertise. 

I really like Vacation Rental By Owner because I find quality tenants. They are mostly families or retired couples looking for a little getaway. I really try to stay away from the "I just graduated! Now me and my closest 80 friends are gonna spend a week at the beach!" There is a little bit of this on VRBO, but not too much.

I could probably go on and on, and write an article myself about vacation properties, but I'll leave that for Brandon. Basically, if you find the right property and make it comfy cozy for guests, the profits can be huge. 

I look forward to your article Brandon. Thanks.

Jessica

I was introduced to the vacation rental world when I moved to Branson last summer. It's a pretty stable market and much more profitable than standard leasing in this area. There is one single VR development here which started in 2006. While all other developments went bankrupt and shut down with the crash in 2009, the VR dev continued to grow an average of 6% every year.

As has been mentioned already, the cons include relatively high startup costs due to size/quality of the house and furnishings, management intensive, and meeting restrictions. 

Median home price here is $170k while the sweet spot for a VR home is $350-$400k. The more bedrooms you have, the bigger the bang for your buck. The more people you can get into your house the higher your rental rate can be. VR's are a grey area for lenders. Some don't know what to do with them, but since they can be viewed as anything from a second home to a motel, there are actually more opportunities for lending. Even SBA loans can be used to buy a VR.

Here in Branson some new regulations came out in 2013 requiring, among other things, a sprinkler system. That might cost only $3500 in a new construction but can be 4 times that to put one in an existing home. Restrictions like these have pushed investors towards new construction.

One last thing is taxes. The IRS views VR's as an ACTIVE investment. This is important and you should discuss it with a CPA since it might be a pro or con depending on your situation.

I picked up some land here in Branson last month for a vacation rental development and should begin construction in the next couple months. VR is definitely my favorite REI niche so far.

@Steve Dove  

Originally posted by @Steve Dove:


....and love the tax advantages (not subject to passive loss limitations) of a vacation rental, as opposed to a long-term rental.

I am comparing out of state VRs vs local LTRs. I favor VRs as my local market is hard to break 1% rents.

Can you further explain the tax differences you are mentioning?