Author Topic: How to evaluate a vacation rental? If you own one, tell me if it is a good idea.  (Read 851 times)

K-ice

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So I am looking for some advise on evaluating a vacation rental.

Having a Vacation property is a very un-mustacian thing to do.  But there must be someone out there who has one.

I am already using the spread sheet provided for evaluating a rental property.  I am getting a pretty good idea for expenses  but estimating my income is much more challenging.

I have heard that I can expect it to average 70% over the year in my area. I have also looked on VRBO and AirBnB at similar properties and gone over month by month to see the availability.

The area is already 58% booked for the 13 similar properties in 2019.  The fall is very thin but might fill up closer to that time. I could look at the back data for 2018 for one popular place and it was 85% full (I am not sure how much was owner occupied). 

I am basically ignoring "cleaning" as that is usually an additional fee on-top of the booking on sights like AirBnB and VRBO.

The price per night can also vary a lot between properties and for the time of year. I am using the average listed from VRBO in my calcs. It looks like it can be +/- 30% depending on low or high season.

If you own your own rental property do you sometimes slash your price about a month out just to get a week rented?

Property management can vary from 20 to 30% and I even know someone in the area who self manages from a distance with good cleaners.  I think I would try to DIY first and if it is a hassle I'd then sign it out.

My break even point seams to be somewhere between 19 and 21 nights.  So precariously close to that 70% occupancy.

I'm just wondering if any Mustacians have experience and advice.
« Last Edit: February 04, 2019, 02:02:58 PM by K-ice »

tralfamadorian

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...Property management can vary from 20 to 30%...

My break even point seams to be somewhere between 19 and 21 nights.  So precariously close to that 70% occupancy.

I'm just wondering if any Mustacians have experience and advice.

Is that 20-30% verified for your area? I looked at vacation rental management and the numbers were closer to 60-70% in the locations I looked at seriously.

Does your 19-21 night break even point include utilities/repairs/capex/furnishings?

K-ice

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Is that 20-30% verified for your area? I looked at vacation rental management and the numbers were closer to 60-70% in the locations I looked at seriously.

Does your 19-21 night break even point include utilities/repairs/capex/furnishings?

I have been told the 20-30% from a friend for the area but will need to check with a local company. They literally gave me the name of a company they called for the 30% and said others charge less but then nickle and dime you for extras.

Furnishings are included in an initial $50K improvements. Perhaps I need something annual for missing linens, broken kitchen things & beds that will wear out over the years.


For the moment, expenses include the following:

Property Taxes   
HOA   
Insurance   
Maintenance & Repairs   
Variable Cost Property management (currently low as I want to self manage)      
Tenant Placement Fee (This is one I kept but don't know what to allot)
Annual Tuneup/Inspection   
Travel   (To visit 2x a year in shoulder season)
Internet    
Water (per unit)   
Power   

I have nothing allotted for soap, shampoo & body lotion & dish soap is also necessary. Perhaps a top cleaning company would include that but of course at a cost. If anyone has an estimate of what this costs them I would appreciate it.

I am leaning away a bit as it my not be the right place at the right time. But I do think we will strongly consider a vacation rental in the next 5 years and knowing how to more accurately crunch the numbers is very useful.


tnrunner

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We bought our first vacation rental last year for 70k in a very touristy area of TN. Its a small studio with mountain views and it grossed 23,900 from mid march-dec. We have enjoyed the whole process and just closed on a second unit in the same complex last week.

We self manage through Airbnb who also collects and remits state sales tax for us. I spend anywhere from 1-4 hours per week on the rental paying bills (most are autopay), messaging guests, and speaking with the cleaning company. We make the four hour drive everyother month or so just to check on it but really we could get by with much less but we love the area and enjoy going.

cleaning company- we started with a larger professional company with a couple dozen employees and the quality was subpar. We are now with a small family owned, two employee company and it has been night and day difference. They provide all linens, small shampoo/conditioner, small bar of soap, dish soap, dishwashing detergent, two rolls toilet paper, two garbage bags per bin and one roll of paper towels. They also let us know if anything looks damaged or is missing.

maintnence- we use a couple of the already employeed maint. staff at the condo since they are free to do work for us after their shift ends. We have a local plumbing company and are looking for a good reputable electrician should the need arise.

Knock on wood we have had nothing but a positive experience thus far.

K-ice

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cleaning company- we started with a larger professional company with a couple dozen employees and the quality was subpar. We are now with a small family owned, two employee company and it has been night and day difference. They provide all linens, small shampoo/conditioner, small bar of soap, dish soap, dishwashing detergent, two rolls toilet paper, two garbage bags per bin and one roll of paper towels. They also let us know if anything looks damaged or is missing.

Knock on wood we have had nothing but a positive experience thus far.


It's encouraging to hear you are making a go of it on your own. That is a wonderful Gross in your first partial year considering the purchase price. Nicely done!


jwright

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We have a high end condo in Asheville NC.  This is meant to be a family vacation home that also makes a little money on the side.  I'd say 70% occupancy is pretty optimistic.  We find that most guests are coming for a long weekend, three or four nights (we do have a three night minimum stay).  Once a weekend is booked, it is extremely rare to book the remainder of the week to a different guest (no one staying Mon - Thurs).  The nature of the work week alone means it's closer to 50% occupancy.  We do really well in the spring and fall but January and February are slow.  We do offer discounts to week-long and month-long guests to try to combat the weekend only curse.  We grossed $81,541 in 2017 but only netted $33,000 after all expenses.  Haven't finished the books for 2018 yet.

We pay 20% to the property manager and she handles everything from dealing with all guests, coordinating the cleaner, filing sales tax returns, and handling maintenance.  Some weeks she does nothing but answer a few emails but other weeks can be pretty time intensive.  We give her a credit card linked to our account with a $500 limit which we pay monthly.  I've been surprised at how much wear and tear the guests put on the unit.  Linens, cleaning supplies, toiletries, kitchen gadgets, replacing chipped glassware all adds up.  While I do think she does a good job, when we visit (approx. quarterly) we make a list of everything that needs to be taken care of; it seems she's not looking out for some of the small things herself.  But in her defense she's not the owner. 

We've had fun with it.  We like to use the condo ourselves; we paid cash so no worries on not meeting the mortgage payment, and it's been fun to analyze the calendar and see the cash flow trends.  If we were more dependent on the performance, I think I would try to self manage but this works for us.

Apple_Tango

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My mom has a vacation rental in Florida. It cost $245,000 to buy, and the income is approximately $30,000 per year. Out of that 30k comes: 20% commison to the property manager, $150 cleaning every time some one leaves, taxes, HOA, utilities, cable, supplies (towels, bedding, lightbulbs, etc), repairs, insurance, and a whole lot of hassle (hurricane zone). Lots of the expenses can be deducted so she ends up pocketing around $5-10k per year. The property 2 years later is now worth about $300,000.

Just like everything else, you have to buy low/get a good deal for it to work. She likes it because she can escape the winters. Itís northern Florida beach front, so the peak rental time is actually during the summer and she uses it herself during the winter so she doesnít have to freeze her butt off in her home state. Itís consistently rented for weekly rentals from April-August, and some random rentals here and there during off season, there was one repeat renter who booked for a whole month but he had to be canceled due to hurricane damage.

If I was to get a rental, watching my momís experience, I would NOT do short term vacation. I would do a normal yearly rental in a normal neighborhood if I wanted to actually make money with less hassle.
« Last Edit: February 04, 2019, 04:23:56 PM by Apple_Tango »

tralfamadorian

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We bought our first vacation rental last year for 70k in a very touristy area of TN. Its a small studio with mountain views and it grossed 23,900 from mid march-dec. We have enjoyed the whole process and just closed on a second unit in the same complex last week.

We self manage through Airbnb who also collects and remits state sales tax for us. I spend anywhere from 1-4 hours per week on the rental paying bills (most are autopay), messaging guests, and speaking with the cleaning company. We make the four hour drive everyother month or so just to check on it but really we could get by with much less but we love the area and enjoy going.

cleaning company- we started with a larger professional company with a couple dozen employees and the quality was subpar. We are now with a small family owned, two employee company and it has been night and day difference. They provide all linens, small shampoo/conditioner, small bar of soap, dish soap, dishwashing detergent, two rolls toilet paper, two garbage bags per bin and one roll of paper towels. They also let us know if anything looks damaged or is missing.

maintnence- we use a couple of the already employeed maint. staff at the condo since they are free to do work for us after their shift ends. We have a local plumbing company and are looking for a good reputable electrician should the need arise.

Knock on wood we have had nothing but a positive experience thus far.

Thanks for sharing your experience @tnrunner ! ~$24k gross income for a $70k purchase price is very impressive. What has your net income vs gross been like? HOA and utilities?

tnrunner

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We bought our first vacation rental last year for 70k in a very touristy area of TN. Its a small studio with mountain views and it grossed 23,900 from mid march-dec. We have enjoyed the whole process and just closed on a second unit in the same complex last week.

We self manage through Airbnb who also collects and remits state sales tax for us. I spend anywhere from 1-4 hours per week on the rental paying bills (most are autopay), messaging guests, and speaking with the cleaning company. We make the four hour drive everyother month or so just to check on it but really we could get by with much less but we love the area and enjoy going.

cleaning company- we started with a larger professional company with a couple dozen employees and the quality was subpar. We are now with a small family owned, two employee company and it has been night and day difference. They provide all linens, small shampoo/conditioner, small bar of soap, dish soap, dishwashing detergent, two rolls toilet paper, two garbage bags per bin and one roll of paper towels. They also let us know if anything looks damaged or is missing.

maintnence- we use a couple of the already employeed maint. staff at the condo since they are free to do work for us after their shift ends. We have a local plumbing company and are looking for a good reputable electrician should the need arise.

Knock on wood we have had nothing but a positive experience thus far.

Thanks for sharing your experience @tnrunner ! ~$24k gross income for a $70k purchase price is very impressive. What has your net income vs gross been like? HOA and utilities?

HOA is $174/mo and includes TV, internet, water, and firewood in the winter months. Our electric runs anywhere from $60-$125 month depending on the weather. Cleaning fees approx. $5,000 year and taxes (yearly city/county and monthly hotel motel/gross) run another $1,000. So we net around $17,000 a year

Fishindude

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I own a lake house and our neighbor at the lake rents his out.   Don't know the specifics, but they advertise through VRBO and handle all of the management themselves, the wife does this.
They have a mowing service to keep the yard nice, cleaners that clean after a guest leaves so it's ready for the next, somebody to put the pier in and out, somebody to clean snow, etc.   

Their place is probably worth $400,000, so if they have a $320,000, 30 year mortgage, payments would be around $18,000 annually, plus insurance, utilities and the items mentioned above.   They were getting $3,000 per week and easily had it rented 12 weeks, $36,000.    That house is paying for itself and the owners still use it weekends and weeks when it's not rented.

LiveLean

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We live in Florida but have a vacation rental in VA Beach in an area my family owned a weekly vacation rental when I was growing up. (I wish I had just bought that one when my folks sold in 1997, but that's another story).

The key to the math for us is enjoying it ourselves. We spend 2-3 weeks there from late-May to mid-June (kids here in Florida get out of school Memorial Day). Those weeks don't rent well since most tenants come from the NE, which tend to get out of school in early-mid June. We rent it out on a weekly basis from mid-June through the end of September and usually book solid. Gross rent is $38K to $40K.

Like everyone else, I could break down our numbers -- 15 percent management fee, utilities, taxes/insurance, repairs, cleaning, cable/Internet, etc. - but the reason the math works for us is that we love the place, spend that 2-3 weeks a year there, along with the occasional Thanksgiving week or spring break. (Oct. 1 - June 15 rental prices don't justify renting it and in recent years we've even shut down the place and done a seasonal disconnect of utilities and cable/Internet from mid-Oct to mid-April).

We look at this 1,300 square foot home as a future FIRE home we'll spend more time in when the kids are in college. We have neighbors who look to rent their place 365 days a year, but we've found that if it's not a place you want to spend time in - either now or in the future -- the headaches wouldn't be worth it. We use the same management company that my folks did when they rented their home from 1978-87 so I was well-versed in the ups and downs of the experience.

electriceagle

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I'm simple. I would estimate the revenue (excluding cleaning fees, minus taxes) based on others in the area, multiply by 75% and use the 1% rule.

K-ice

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... we've found that if it's not a place you want to spend time in - either now or in the future -- the headaches wouldn't be worth it.

Thanks LiveLean. That is great that you are at least still able to stay in the place where your family has ties.

The two places I would consider for vacations rentals both have family ties in some way.  They are also places I would, & do, visit. I also enjoy visiting in their "off" seasons so rental potential in the "high" season is likely.

Lots to keep thinking about.

I'm simple. I would estimate the revenue (excluding cleaning fees, minus taxes) based on others in the area, multiply by 75% and use the 1% rule.

But back to reality with the math.....  Thanks, the one area I am considering is not a good deal :(

Mortgage payments would drag on for years and I may never be able to afford to use it for more than a few weeks a year.

This link explains the 1% rule in more detail.

https://affordanything.com/one-percent-rule-gross-rent-multiplier/


...  I'd say 70% occupancy is pretty optimistic.  We find that most guests are coming for a long weekend, three or four nights (we do have a three night minimum stay).   ...

Guest turnover is certainly an issue. A 4 to 5 night minimum is not uncommon in the one area I am considering. In the other area there is a lot of variability. I've stayed a few days to 2 weeks.

I own a lake house and our neighbor at the lake rents his out.   .... They were getting $3,000 per week and easily had it rented 12 weeks, $36,000.    That house is paying for itself and the owners still use it weekends and weeks when it's not rented.

$3,000 per week is solid and it is nice to secure people for more than just the weekend.