Florida Vacation Rental with 17% COC Return

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Florida Vacation Rental with 17% COC Return

Christian Cascone
Development Director · Boca Raton, FL · Member since 2016 · 29 posts · 22 votes

Been searching the BP forums and not seeing much discussion about vacation rental properties. So thought I'd share a vacation rental success story and hope to get input from other members regarding vacation rental investment.

I'm new to BP, but not treasure hunting or real estate investing. Picked up a little 1950's conch house on the water down in Marathon, Florida back in 2012 on short-sale. The house was an immediate success, renting at ~$1300-$1500/week for 30+ weeks each year, returning double-digit COC even with outsourced property management. We've been reinvesting returns to improve the property along the way, given significant comp appreciative value in the area. This year we're adding a pool, which believe it or not, jumps market rent from ~$1500 to ~$2300/week...vacationers love pools! Now COC for 2017 is conservatively projected at 17-18%.

The math:

We bought the property for $305k on a fixed-rate 30-year loan at 3.5% with 20% down. Improvements over the years total ~$145k, pool included. Vacation rental expenses are high...we're at $3525/month, a major reason for reduced investor interest, I'm sure. But weekly vacation rental income is typically much higher than a comparably priced annual lease property...we're booking weekly rent at a rate of $6708/month. NOI is $51,339 with monthly cash flow of $3182 or 17.19% COC! Thanks to great local property management, this property is essentially passive, requiring little to no owner attention.

Given the crazy real estate market transitions we've gone through over the last few years, we won't even take into account that the property is now worth three times what we originally paid back in 2012. So in this case at least, from both an income/cash flow and market comp property value perspective...we've found that vacation rentals can be a resounding success.  Not to mention the fact that you as owner get to enjoy the view and relaxation for yourself whenever it’s not rented.

Welcome any questions and would love to hear thoughts and perspective from the BP community regarding vacation rentals.  Thanks for tuning in...Christian

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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
10y

@Christian Cascone, very good, getting it back in 2012. The problem for TODAY is, what would those returns be at the asking price of $900k?! Bargain at $800k - will you buy ANOTHER?

Welcome to BP. Enjoy those views and pool during the off season! Cheers...

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  • Brady Lee
    Centerville, UT · Member since 2016 · 51 posts · 9 votes
    10y
    I agree there hasn't been much in regards to vacation rentals. For our first investment property we are getting a condo because it can bring in almost 3 times the amount of a long term rental. I guess a long term rental may be less risky but in my current market, vacation rentals seem the best route for us. Glad to hear you are having so much success!
    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Christian Cascone, very good, getting it back in 2012. The problem for TODAY is, what would those returns be at the asking price of $900k?! Bargain at $800k - will you buy ANOTHER?

    Welcome to BP. Enjoy those views and pool during the off season! Cheers...

    1Reply
  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    10y

         Looks like a fun property!  I agree with Brady however, since you have $700k or so in equity in the property, your opportunity cash-on-cash is only 5% or so.  Unless you are playing the appreciation game, you might do better selling and re-investing those funds into an asset that would generate better returns on your $700k or so in equity.

        With $700k, you could probably cash flow 2-3x what you are getting now by selling this and buying properties that have better returns per dollar value, or dollar invested (assuming normal leverage).

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    Great returns! Apparently they didn't put any restrictions in like I believe they did in Key West before the state stepped in. I have a friend that does very well down there as a builder. Ever try the Marathon Lady? Never had much luck on it but always had a good time.

    0Reply
  • Christian Cascone
    OP
    Development Director · Boca Raton, FL · Member since 2016 · 29 posts · 22 votes
    10y

    Thank you all!   @Brent Coombs Will certainly be doing vacation rentals again...but perhaps in another market, although there are still a few gems in the islands.  Actively pursuing mountain cabins for example, which can be had for much less, and still command impressive weekly rents.  At $800k sale price, the Marathon property would still produce a 6-cap, definitely not as appealing from a pure investment standpoint, but there are other reasons to consider buying even at that price...see image below:)  

    @John D. Great point regarding opportunity cost of staying invested.  And in fact we are looking into alternative options.  Would like to get into a great multi-family with higher return/dollar.   Too much equity tied up with market increases over the past few years.

    Weekly rentals are still allowed in Marathon @John Thedford...one of the few islands left.  The Marathon Lady sails just a couple blocks away from our place out of Vaca Cut...always a good time flat-lining for Yellowtail!

    0Reply
  • Christian Cascone
    OP
    Development Director · Boca Raton, FL · Member since 2016 · 29 posts · 22 votes
    9y

    Nice to see more and more content coming online regarding the VR niche. As cap rates fall in what has become a fiercely competitive investing landscape...vacation rentals can still be had for a reasonable price in some of the best parts of the country, and are proving very nice value-add plays with the ability to force real value...if one pays close attention to what vacationers want in any given market. Adding this pool to one of our properties allowed us to raise rents from $1300-$1500/week to $2300-$2500/week, and the number of weeks rented has actually gone up. Now that's what I call an NOI boost! Would be tough to get that much of a rent increase in any kind of traditional monthly rental, no matter what the improvement.

    Here's a great listen on vacation rentals...

    https://www.biggerpockets.com/renewsblog/biggerpoc...

    1Reply
  • January Johnson
    Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 487 votes
    3y

    If you're "not seeing much about vacation rentals" on BP, you're in the wrong forum. Check out the STR conversations. That's ALL we're talking about there.

    I talk about it on here all the time!  :  )

    0Reply
  • January Johnson
    Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 487 votes
    3y

    But oh - OP was 7 years ago, ha ha.  Yeah, maybe not then... 

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