Buying a vacation rental

[Texaus 377]

There was a good all things landlord thread on the old board. I have one house that I rent on traditional monthly schedule and it s working out very well for past 5 years.

 

I am considering purchasing a property with 3 existing 1bd/1ba units. I believe the property location is prime for making these vacation rentals. How would you go about running some hypothetical numbers/scenarios on the idea to get an idea of return before pulling the trigger? Anyone do vacation rentals as an investment?

[Robin Masters 122]

I would look on AirBNB and or VRBO, for comparables and then check their calendar, how rented up are they. That should give you some idea what you can expect for gross income, and then just figure the expense side and add a lot to that for all the weird ways the renters will come up with to fuck things up. 

I am kicking around a similar idea. I want to buy someplace in a ski town to live during the hot ass Texas summer, and then rent it during the winter to skiers. To me we are very late in a huge economic boom cycle, rates are going up, not a great time to buy. I'm sure there will be some 20 something set me straight on this though.

[zman13 180]

On 4/12/2018 at 10:35 PM, Robin Masters said:

I would look on AirBNB and or VRBO, for comparables and then check their calendar, how rented up are they. That should give you some idea what you can expect for gross income, and then just figure the expense side and add a lot to that for all the weird ways the renters will come up with to fuck things up. 

I am kicking around a similar idea. I want to buy someplace in a ski town to live during the hot ass Texas summer, and then rent it during the winter to skiers. To me we are very late in a huge economic boom cycle, rates are going up, not a great time to buy. I'm sure there will be some 20 something set me straight on this though.

Definitely second checking the comparables and calendar.

Have two investment properties that rent as short term rentals. Some thoughts:

- Target market - which type of guests do you want to attract? Bachelor parties? Families? That will help you decorate and market the property and plan for a deposit to cover damages

- City legislation - are there any restrictions on short term rentals?

- Cleaning - assuming you are not cleaning it, plan for a primary cleaner, a backup and a backup to the backup. This may be the most important piece of advice. 

- Maintenance - how many toilets do you want to unclog? How many walls do you want to touch-up? I believe everyone has a sweet spot for do it yourself vs pay someone else. Be honest about what you enjoy vs don't enjoy

- Availability - the short term rental services (AirBNB, VRBO, etc.) will rank your house higher if you respond quickly to guest inquiries. Some guests will also require a lot of hand-holding and help. Be ready for lots of communication. Guests will be confused by the door locks, the coffee maker, want advice on restaurants, directions to the house again

- Stocking the house - plan to buy more pillows, blankets, sheets, etc than you would ever consider reasonable. 

- Quick fixes - Sometimes you have to go by the house to fix something quickly for a guest. Or drop off something. If you are close by and have flexibility, it's easy to do yourself. If not, consider making a deal with the cleaners or someone who is available for last minute errands

- Guest screening - Your life will be easier if you turn down some guests. There are guests that will trash the property, ruin furniture and carpets and deny everything. You'll start learning quickly to spot red flags

- Replacement - plan to replace stained towels, sheets and washclothes pretty frequently. We replace at least one towel every two weeks

[UTPhil2006 3,807]

Buying an investment property eh?

[beer 3,220]

[rant]  I've been doing this too.  One cool way I saw people do it was to look at both ROI  (net income / investment) and cash flow - like "how many days does it have to rent for me to break even" depending on if you can keep pumping money into it. Cash deals are easier but if you buy it through some IRA trust thingy this gets important since you can't do shit to fix it yourself or even add more money into it.   I thought one place looked awesome but it would have to rent 20 days/month to cover expenses (a condo hotel). 

Reading posts from people who got a little burned...

Higher taxes than you expect:  (shit will be revalued when you buy and as a owner-occupant it will be a higher rate too)

Housekeeping:  can be $150/unit depending on the concentrations of mexicans (no hay racismo), and how do you get the linens cleaned? in Myrtle beach your renter handles that through a linen rental service - pretty cool, Miami beach?  not so much).  What if they didn't wash the dishes?  Windows? Who takes out the garbage and when - what if the cans have to go out on Wednesday?  It rained buckets and the sliding door leaked and carpet is soaked.  How often can someone who gives a shit about your investment go and look the place over?

Last-minute emergency repairs are murder...paying a damn plumber $300 Sunday night for a fucked up sink sucks when you know all it needed was for someone to take off the trap and remove the fucking bandaid. Leave a few simple tools - like a sink and pipe snake and a pair of pliers.  There are insurance policies you can make a renter pay for that cover damage but that doesn't cover that stuff. 

Also - is this part of a larger complex?  Whats the monthly maintenance? Sure you already calculated that but are they banking money for a new roof after hurricane Sepabtian takes it out 5 years early?  Pretty new flowers for spring? New pool pump or replacing all the outside decks?  If not they will hit you with another assessment later. Don't worry about voting against it - everything they want always passes. 

Electricity/utilities - they will waste that shit, turn on hair dryers and point them out the window all night, bring their electric kiln from home, leave the hot tub bubbling and full heating for 2 months, etc.. Hear a toilet running and not mention it, take 7 baths a day.  Whatever you think it will be it will be more.

I have friends who only rent to families (even that doesn't help sometimes) or mature (>20's) adults to reduce those expenses because they are too far away to watch it very often themselves.  Management is not just 10% of rent for this stuff since occupancy is not guaranteed. It makes people want to do it themselves but it takes work. 

For figuring out income - VRBO is great for predicting and for keeping it current. I have no idea how to do that a year in advance on that site - i tried.  You see the calendars but unless its a really big festival or something they don't really start filling until 3 or 4 months out. Maybe the timeshare sites are better for knowing that. Not everyone knows to look for a timeshare rental site to get a good deal.  Usually have to rent Fri-Fri or Sat-Sat but there are some great deals there way in advance or very last minute.  You can probably beat that price a little because not too many people know about that.  Find out when the big crunch dates are (big festivals, etc) way in advance.  If all of week 26-28 is gone for your location that helps you know it is very popular/expensive. [/rant]

 

 

[UTPhil2006 3,807]

Have gotten a few PM's/emails about this lately, figured I'd bump this.  Keep in mind that if buying for investment/rental purposes it's going to be at least 20% down

[EZ$ 2,105]

Wife quit her job to stay home with the kids, so I put up our lake house for sale (market is double what we paid 4 years ago). It got a lot of action, but no serious offers so we put it on VRBO and it instantly booked up the first month and about half of the next. The first tenant booked for 13 nights and checks out Tuesday, so it will be interesting to see how he left the property. 

It’s pretty much a win/win for me. I get to keep the lakehouse and can still pretty much go out there as often as we used to, but I’m also making enough on the rentals to cover all bills and loan payments (almost 2x). 

We went from trying to sell to now being potential buyers for any similar properties on the lake after seeing the initial demand/income potential from ours. Will be interesting to see how the demand holds up during the fall/winter. 

[hornbri 1,399]

Interested in this thread. My wife’s grandfather recently passed and left the family a lake house. The family is looking to turn into a vacation rental. Only problem is no one lives within 6 hours of it so we will need to use a management company. Still scoping out costs on this one.....

[Texaus 377]

Forgot about this. I did end up purchasing the property. I scrapped the vacation rental idea and have three long term tenants in each unit. Sold another rental house and used a 1031 Exchange to buy this new property.

[XYZ 2,154]

When some years ago I asked for opinions about vacation rentals on the old board, the general feedback I got was that people got tired of dealing with all the shit and quit renting it out after a while. And property management companies generally suck.

[DFWTexEx 276]

Bumping this old thread.

I grew up near South Padre.  Because of current travel limitations and to be near my aging parents more frequently (and having a break from staying with them), I am considering getting a condo on the island.  I plan to use it personally and have it available for friends / family.  But would also like to have it as short-term rental when it's not being used.  I have a long-term rental property but have never done anything like this.

I don't expect it to be cash flow positive but would like to know what I am getting myself into.   

I can get to some sort of base line cost by considering mortgage, taxes, insurance and HOA.  Then, I can make some reasonable estimate of rental income and subtract management fees (and cleaning etc.) and repair costs and compare the two.     How trustworthy are rental numbers from the seller?   I assume that a full-service management company will require that it be on the market enough days for them to make money.  Is there an alternative to this - like a limited services management company, to clean, make repairs, deal with issues, etc., but market it myself on AirBnB / VRBO?

What am I missing?  Any tips?   I'm thinking about a 3 bedroom so that my whole family can be there and also to market it for pandemic travel since the 3rd bedroom can be used for working or home schooling.

[ChickenSandwich 9,836]

Does the condo board allow STRs?

[Aqua Buddha 14,598]

As someone who has done both traditional rentals and AirBnb, just realize they are two different businesses.  One you're in real estate and the other you're in hospitality.  Completely different businesses.  Traditional rentals are more consistent but hospitality can be highly seasonal.  You might buy a place on the beach in FL, for example, thinking you'll use it during the winter but that's when everyone else wants to to use it, too.  You're sacrificing money to use it during the season.

Also, about the seasonality, make sure the revenue during the season is enough to cover everything during the off season.

[Brew 3,049]

We only allowed monthly rentals with ours and just outside of the timing we could go. It typically rented Jan-March/April and the last two years it has been rented to one person. It was nice because it covered taxes/insurance. However, we’re not renting going forward. The main reason is because we just don’t want anyone in the house going forward. This lady was older and took care of it, but it’s still someone in our house. The second issue was it got in the way of us going a couple of times when we had time that were not planned. 

There is no way I would want to deal with short-term renters. They just don’t take care of things the same way and are hard on everything. I’ve thought about buying a separate condo to rent and let our family use occasionally nearby, but I wouldn’t want to do it with my main property.

[justhookit 4,191]

23 hours ago, DFWTexEx said:

Bumping this old thread.

I grew up near South Padre.  Because of current travel limitations and to be near my aging parents more frequently (and having a break from staying with them), I am considering getting a condo on the island.  I plan to use it personally and have it available for friends / family.  But would also like to have it as short-term rental when it's not being used.  I have a long-term rental property but have never done anything like this.

I don't expect it to be cash flow positive but would like to know what I am getting myself into.   

I can get to some sort of base line cost by considering mortgage, taxes, insurance and HOA.  Then, I can make some reasonable estimate of rental income and subtract management fees (and cleaning etc.) and repair costs and compare the two.     How trustworthy are rental numbers from the seller?   I assume that a full-service management company will require that it be on the market enough days for them to make money.  Is there an alternative to this - like a limited services management company, to clean, make repairs, deal with issues, etc., but market it myself on AirBnB / VRBO?

What am I missing?  Any tips?   I'm thinking about a 3 bedroom so that my whole family can be there and also to market it for pandemic travel since the 3rd bedroom can be used for working or home schooling.

DO. NOT. EVER. BUY. A. CONDO. ON THE BEACH.

unless you are sure SPI won’t be hit by a hurricane. Every condo owner in Port A got screwed by Harvey.

[Updawg 2,266]

DO. NOT. EVER. BUY. A. CONDO. ON THE BEACH.
unless you are sure SPI won’t be hit by a hurricane. Every condo owner in Port A got screwed by Harvey.

I was wondering about that. I assume all the owners have basically bought a condo that hasn’t been available the past couple of years?

[elfenix 34,248]

1 hour ago, justhookit said:

DO. NOT. EVER. BUY. A. CONDO. ON THE BEACH.

unless you are sure SPI won’t be hit by a hurricane. Every condo owner in Port A got screwed by Harvey.

my dad has given me two pieces of genuine advice in my life.  1) wrap it up. 2) don't buy real estate on a sand bar.

[Dbeasy 15,051]

True story - back in the 70’s my parents bought a south padre island waterfront property. A hurricane wiped out the entire development. The actual land itself. Good times.

[justhookit 4,191]

42 minutes ago, Updawg said:

I was wondering about that. I assume all the owners have basically bought a condo that hasn’t been available the past couple of years?

It’s not just that. Insurance didn’t cover everything and there have been additional assessments. I know people that have had to fork over well north of 100 grand. Mind you this is for common property. Most of them also got screwed on their own units. And about 6 months after the hurricane your HOA dues start back up even though you aren’t living there. About 1/3 of them still aren’t in and we are 3 years from Harvey. 

Houses on the other hand did ok provided you had good insurance. Mine turned out really well.

[XYZ 2,154]

There’s supposed to be a flood of vacation rental properties going for sale, although I’m not seeing it (yet).

[Updawg 2,266]

Yeah, I had a friend that bought a house a couple of months before it hit. It worked out good for him

I wonder how many condo owners just walked away from them. Seems like a lot of people that relied on the rental income would be screwed.

[justhookit 4,191]

5 hours ago, Updawg said:

Yeah, I had a friend that bought a house a couple of months before it hit. It worked out good for him

I wonder how many condo owners just walked away from them. Seems like a lot of people that relied on the rental income would be screwed.

Not many but there were a bunch of fire sales that first year. Now the real estate market here is nuts again. 300+ sq ft for old houses that were remodeled after Harvey. 400ish for new builds. 1100 sq ft condo down the street from me (totally re-done and very nice) just got listed for 675,000. He won’t get it, but a comp in the same complex that wasn’t redone and had no balcony just sold for 425.

They just built 19 units on 11th street that are 750sq ft. You can buy one for 275,000 and can’t fit a queen bed in the bedroom. I’m pretty sure they are all already sold.

Edited August 19, 2020 by justhookit

[justhookit 4,191]

8 hours ago, Dbeasy said:

True story - back in the 70’s my parents bought a south padre island waterfront property. A hurricane wiped out the entire development. The actual land itself. Good times.

At least it was cheap back then?

if I’m buying right now it’s definitely down there. Way, way more value for your money. If I had developer type money I’d be buying everything close to Cinnamon Shore right now.

[DFWTexEx 276]

Is there a way to mitigate (not eliminate) the risk by examining the HOA reserves (and structure for use) and insurance coverages and getting into a newer building?  Or is this just a hard pass for y'all? 

[Chewbacca 7,780]

Hurricanes aside, owning a vacation rental sucks.  People suck, they break shit, they steal shit.  Growing up my parents had a condo at Copper Mountain and my dad rented it out himself (the internet would make this part infinitely easier these days).  We would go up all the time to find broken shit, stolen shit (and dumb stuff like a $20 coffee maker).  Once someone cut the lock off our owner's closet and replaced it with their own lock.  All we had in there was linens, towels, etc.  Nothing of value.

I don't rent our house because I don't want anyone sleeping on my bed but me.  I've considered doing a longer term rental on our attached apartment, but I don't think I'd ever go the Air BnB route.

[Reagan1k 3,024]

Unless you can turn-key the rental and management of both the property and the renters over to a 3rd party, I wouldn't do it.

Owning single family rental home has its own set of problems, but the day to day headaches of a short term rental are exponentially greater.

I have a stake in a property we rent through a condo association and they handle everything.  Light bulbs, repairs, cleaning, renters locking themselves out at midnight....you name it.

I'm anonymous to the renter. 

I wouldn't touch it with a ten foot pole if I had to ever deal with renters and the associated maintenance.   

It's their vacation and they treat it as if they are in a hotel.  They want everything addressed immediately.  I don't blame them, but I also don't want to be at their beck and call.

[DFWTexEx 276]

I agree with the above and that is my intent.

With respect to the other issues stemming from catastrophic damage to the property or an injury on the property (including common areas) that exceeds the HOA's coverage and reserves, there is loss assessment coverage available to protect from assessments in those situations and there is some business interruption coverage available, which would kick in from a windstorm.  Does any of that help?

[conVINCEd 21,469]

Are all of your HOA business partners (because that’s what they are) going to have the same special assessment coverage?  And when they don’t, and can’t afford the assessment, what haopens then?

Edited August 20, 2020 by conVINCEd

[horn4life 3,760]

On 4/19/2018 at 9:39 AM, zman13 said:

Cleaning - assuming you are not cleaning it, plan for a primary cleaner, a backup and a backup to the backup. This may be the most important piece of advice. 

This is the triple truth.  If you are renting short term you are only as good as the cleaning lady.   And with covid those folks are working their asses off and making good coin if they can avoid getting sick. IF you are renting long distance it's either find a great cleaning lady/handy person or a good leasing company, or good management company and give up a 20%+ chunk. If it's a coastal rental and you want to use it a in the fall and spring then finding some snowbirds for a couple winter months is key to making the books black.

[horn4life 3,760]

made me take a look at some of the Port A condo listings I know won't be online until next year.  La Mirage has a $81,600 special assessment in place.  When I was on a condo board the question often was not what is the number we need, but how much of the number we need will we collect?  For most folks an $81,600 special assessment isn't something you pull out of your emergency account.  So how many folks are gonna say fuck it....

Listed for $140K, pending but on market for a year and 4 days.

Quote

Fabulous views from this top floor 2 bedroom, 2 bath condo overlooking the Gulf of Mexico! Enjoy the views and sunsets from a huge 40 foot deck. Close to the elevator with assigned, covered parking below. Only one wall by entry needed sheetrock replaced. Bamboo flooring in guest bedroom and carpet in the master. There is a special assessment of $81, 600 in place. HOA dues are $676 per month, building insurance is $3011 and taxes in 2018 were $2, 750. Amenities include 2 pools (1 heated), 2 hot tubs, boardwalk to the beach, outdoor showers, picnic area with grills, a rec room with full kitchen and wireless internet. Rental income helps to offset the expense of ownership. Great investment opportunity! La Mirage hopes to open in Summer 2021.

 

[justhookit 4,191]

22 hours ago, DFWTexEx said:

I agree with the above and that is my intent.

With respect to the other issues stemming from catastrophic damage to the property or an injury on the property (including common areas) that exceeds the HOA's coverage and reserves, there is loss assessment coverage available to protect from assessments in those situations and there is some business interruption coverage available, which would kick in from a windstorm.  Does any of that help?

Some but if you happen to be in one of the condos with severe damage it won’t be nearly enough and you will end up in the middle of insurance companies fighting each other and lawsuits. We are 3 years out from Harvey, and 4 of the largest condo buildings are still completely unoccupied. At least one of them is 2 years away from being ready.

Honestly the odds of a major hurricane are really low. You said you are thinking about a 3 bedroom. Get a house, insure it well and then you won’t have to worry about any of the above.