STR - Big bear lake vs Palm Spring vs Lake Arrowhead

42 Replies

Define what "We don't want to overspend money since our mainly interest is to gain high ROI." means to you? Cash flow? Appreciation?

I have looked very closely at 2 of the locations you are interested in, earlier this year - big bear and PS. I did not find "high ROI" with either unless willing to self-manage. Both locations have very high property manager (PM) costs that wipe out nearly all profit.

Also neither city is all that "friendly towards STR" unfortunately, as others have pointed out. PS bills itself as the most difficult town in the US for STR (the local Town admin for rentals told me that on the phone)- they have a nearly $1000 a year permit cost, capped number of nights you can rent (34 or 35 rental instances), someone has to be there to check-in guests, etc. Arduous, and that means a costly PM. There are several folks on this site that do well in the area, but typically outside PS, in palm desert or la quinta or elsewhere, and usually with bigger party/executive homes that can rent for big groups and big dollars, but then your up front costs are higher. I could not make the numbers work, I bid on a few properties in Feb, and glad I did not get into escrow before the pandemic. There are only a couple condo complexes that allow STR (most are monthly minimum), and one during the pandemic changed its HOA rules from 3-4 night minimums to 14 day minimums. The rules can always change, and often for the worse. I love PS but doubt I will ever consider an STR there anytime soon again.

BB is similar - yes STR are popular, yes the town is somewhat friendlier, but after doing research, including talking to a couple guys I met on this site, again I could not find a PM that was lower than 30-35% monthly fees, which eradicated all profit. I have no desire to self manage. Finding super reliable housekeeping and a local handyman (for weekly check-in/wellness visits, changing bulbs, replacing lost or stolen items, housekeepers do NOT do that stuff) is too risky unless you know a lot of people very well, built a team you trust. A first timer in the area likely needs to hire a real PM unless you live very close by. I was also looking in Moonridge, found a couple cute homes, decent priced (300-400k), but they would not gross enough to cover all the PM costs and make much profit to be worth while.

I am looking at other vacation areas instead of these.

@TJ Watson good insight. Meeting guest to check in is a deal breaker for me. I live 1.5 hours away. What other markets are you looking into? I’m open to anywhere, I just need to buy 1-2 next year

Originally posted by @Alex Sabio :

@TJ Watson good insight. Meeting guest to check in is a deal breaker for me. I live 1.5 hours away. What other markets are you looking into? I’m open to anywhere, I just need to buy 1-2 next year

A few of the housekeeping companies will act as a checkin for you if you want to self manage.  

I have to respectfully disagree with people saying you cannot be profitable in those areas. I self manage and have found it very easy (especially in PS) to find crews. They do my in person check-ins (I live too far away). 

Both cities BB and PS have been fine. PS has a lot of rules yes but it's also hugely profitable so I do not mind. I own all over the country but do prefer PS and desert areas to almost anywhere due to ROI.

@Alex Sabio I am mainly responding to the OP's post, it looks like mid-thread you injected your own topic and questions. Highly recommend you start your own thread, to get specific recommendations but also to respect her post. 

I just purchased a new primary residence, so my investment prop searches have slowed, and I plan to wait out the rest of the year to see how the pandemic plays into more or less inventory. Most desirable locations are too frothy right now because of low rates and bored and hungry investors trying to land a deal. The 2 or 3 locations I am still following lightly are just overpriced compared to likely returns for an STR. That's what I have seen in big bear, too many biggerpockets type investors trying to buy-in, and I just don't see how most of the current price levels can be profitable rentals unless you purely self manage. I am still following one CA ski town that I already own in, otherwise I am going to concentrate out of state going forward.

Originally posted by @Tiffany Katuls :

I have to respectfully disagree with people saying you cannot be profitable in those areas. I self manage and have found it very easy (especially in PS) to find crews. They do my in person check-ins (I live too far away). 

Both cities BB and PS have been fine. PS has a lot of rules yes but it's also hugely profitable so I do not mind. I own all over the country but do prefer PS and desert areas to almost anywhere due to ROI.

I was very clear in my posts that you can be profitable if you self manage, but that is tough to do for most people without a big network and trusted team. You don't just show up to a new town and have a trusted team in an hour, it takes time. If you have to use a typical PM with standard 25-35% fees, that is where you walk the fine line of no ROI. Investors just need to do their homework and run numbers, as usual.

@TJ Watson i agree with you! PS has so many restrictions that we actually steer away from it. I am, however, looking at surrounding areas such as Cathedral City, Palm Desert, and Indio. Even so, those cities have their own restrictions that make STR harder to operate each year. I have been watching the RE market like a hawk. With the pandemic, it is very risky to purchase one. We are predicting that everything will still shut down till next year. So we are waiting for the right time to purchase. AS for PM, i have my way to operate on my own. I'm not one to blow 20-35% on PM if i can do most of it myself. All i need is to hire 2 cleaners. And perhaps talk to the neighbors if they want extra cash. There are so many ways to bypass PM. I have done STR back in 2014-2016. I did very well on my own. So im not afraid to jump on the wagon by myself.

Lets talk about big bear. What i've seen, the market has been a huge seller market. There have been crazy bidding wars to obtain any properties within $200-$400k range. I've stopped all search. And you're again correct about negative gross income due to high prices. Majority of STRs make their upcharge money during ski seasons. The new investors that recently bought, i think they are gonna have to hold on. If things don't look good, they're in for a big downturn. It doesn't make any sense to purchase now. Again, hiring a PM with 20-30% cost is stupid to me.

As for now, I'm looking at local areas such as Santa Ana, Long beach and surrounding areas. Just like you, I'm waiting till the end of the year to make another purchase

Originally posted by @Lien Vuong :

I have a SFH in that area (San Bernardino mountains) which cash flows and has appreciated a lot due to my buying it in 2011. I don't think I would go there in this market though. For a few reasons.

1. Cities can (and do frequently) ban STR.

2. The industry in these areas are very much based on tourism, which would make me question if there is a big enough pool of qualified long term renters, if you had to go that route. 

3. Tourism as an industry can be pretty volatile and your pool of long term renters will also be subject to that volatility.

 

@Rachel S. i agree with you. I think a good property should be able to serve as short & long term rentals in needed. if it caters heavily on one side, it eventually will collapse on its own. RE is a gamble but it doens't have to be if the numbers are right. We all just need to be patient & buy at the right price. Just like stocks, buy when it dips. 

Originally posted by @Nadia O. :

@Rachel S. i agree with you. I think a good property should be able to serve as short & long term rentals in needed. if it caters heavily on one side, it eventually will collapse on its own. RE is a gamble but it doens't have to be if the numbers are right. We all just need to be patient & buy at the right price. Just like stocks, buy when it dips. 

 I think there are some areas that make great LTR but have little potential to be STR. I would have no problem investing in those, if the numbers work out. I think a STR investment should always have the potential to turn into a LTR though, for the reasons I stated above.

 

I can speak to Big Bear. We owned and visited Big Bear for many years, decades actually. We were in BBC, close to the airport and some restaurants, etc. There are many, many small cabins in that area that serve as vacation homes and STR. From BBC, Baldwin Lake or Moonridge, you can walk to the forest but not the ski slopes or downtown. Big Bear has always been a tourist area. Peak season is winter, but lack of snow can have a big negative draw on tourism, as people think skiing when they see the snowcapped peaks from home in downtown LA. There was something like 100% occupancy over Thanksgiving and the Christmas/New Year holiday, and, back then, a lot of vacancies in between.

 Year round rentals don't have much demand and there's not a lot of employment unless you go "down the hill" for work.  That's a 2-3 hour r/t commute, so most people don't do it.   What's left are B & C type long term renters overall.  Retirees buy there, tourists visit there, people own long term 2nd homes there,  and a LOT of marginal people escape there.  

If you're hands off, I'd say branch out to a place that isn't already overrun with STR and where the restrictions are lax or non-existent. Look for a niche. A nice property that stands out- hopefully due to location and a lovely setting. Decorate it beautifully, perhaps in theme, and stock the kitchen nicely. A little hole in the wall gem with a pretty view and a small town feel might do far better for you than being one of hundreds and a worn out STR welcome from the locals. If I were hooked on the Mt/desert regions of so Cal, I'd look slightly further afield. Joshua Tree, maybe. Pioneertown? Lucerne Valley? Spring Valley Lake on the backside? Pinon Hills up against the mountains? Idywilde? Julian? The old areas of La Quinta? I don't have a feel for these areas currently as STRs, but perhaps one of them might work for you. The price points are better and that will give you a little leeway with your cashflow while you build your business. You are building a business, hopefully with gushing reviews and repeat customers, but it all takes time.

@Nadia O. Following up what JJ said, the high desert (Yucca Valley, Joshua Tree, Pioneertown, is booming as far as STR are concerned). That's my hometown and my family operates a large real estate/PM business out there. That family and many of my friends have many many STR that are doing very well for themselves. It's also doing really well for LTR too as people from LA are flooding the area for both short term and long term reasons. It's right next to JTNP (Joshua Tree National Park) so we get a lot of tourism, including celebrities. Of course, do your own research about area laws regarding STR. We just bought our first LTR and are cashflowing well.

@Nadia O.

Had a bud recently but a STR in Joshua Tree. It's already booked for the rest of October. Restrictions seem to be minimal and home prices still reasonable. You had someone comment above who seems to have their finger on the market. Reach out to her! GL

@Nadia O.

A little insiders knowledge. Pioneer town has a bar called red dog saloon. Recently purchased by the high end LA restaurant group who own Bestia. Resident chef is a rockstar, plan is for hearty Mexican fare. Good food usually coincides with the path of progress.

Plus who doesn’t want to visit pappy and Harriets for a great concert?

GL

Glad to help! My theory on RE somewhat coincides with Warren Buffett's famous advice:  Buy when everyone is selling and sell when everyone is buying.   My RE take on that wise quote is "look to the upcoming neighborhoods."  Big Bear was a vacation rental area LONG before AirBnB was a household name.  My rough guess is that half the houses, maybe more, are not full time,  primary resident homes.  That's a lot of competition for the same vacationers.  Palm Springs, same.   The Rat Pack vacationed there 50 years ago.  

   Also, if you're just starting and hands off, it's crucial to not overextend yourself financially.   If you can get in for $100K less in purchase price, that gives you some leeway to build your business and/or expand.  You'll have some wiggle room.  

 I wish you the best success.   jjp

Originally posted by @JJ P. :

I'd look slightly further afield.  Joshua Tree, maybe.  Pioneertown?  Lucerne Valley?  Spring Valley Lake on the backside? Pinon Hills up against the mountains?   Idywilde?  Julian?  The old areas of La Quinta?  

I wouldn't touch Lucerne Valley if someone *paid* me to take a property. Nothing there to entice people to a STR and the population is marginal for reliable LTR tenants. I have a friend who inherited a couple of properties in Lucerne Valley so I have this info from the horse's mouth. lol

 

I am a specialist in Big Bear and Lake Arrowhead. Yes, the competition is stiff. Yes, we require in person face-to-face check ins. Yes, you need someone local to help you manage (PM or an individual). But at the end of the day, demand is at an all time high. Our commission is less than 20% for full service and we have connections (housekeepers, handyman, vendors, contractors, etc) that is worth gold! My advice is to buy in the mountains if you love snow and four seasons, this is not a place to invest and expect high ROI. Those days are gone. But you will make some money, cover your expenses, and own a great vacation rental! The permits are not as scary as people think as long as you do your research first. Good luck!!