Author Topic: Vacation Rentals  (Read 3341 times)

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Vacation Rentals
« on: December 08, 2015, 11:53:07 AM »
I'm looking at condos outside Savannah for a springtime buy, just in time for peak tourist season. They're furnished, managed onsite and rented like hotel rooms.

I'm comfortable with own cash-flow analysis if the listing agent can get me the required data. I'm just wondering if anyone else has tried this and learned any noteworthy lessons about how it differs from normal rentals. Are there unique considerations, aside from higher management costs and lodging taxes, that could affect the evaluation process?

Example, for S&G.

DaveR

  • Stubble
  • **
  • Posts: 243
Re: Vacation Rentals
« Reply #1 on: December 08, 2015, 05:15:22 PM »
I don't have direct personal experience, just a friend's AirBnB experience/evaluation. The big killer was vacancy rate...he just couldn't make the numbers work out with the turnover costs and unpredictable vacancy. And it wasn't even a seasonal type property. The only reason it wasn't a total bust was a 1 mo rental (relocation) evened things out.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Vacation Rentals
« Reply #2 on: December 09, 2015, 07:38:06 AM »
Yeah, I don't know how much these vary year-over-year, but there's 16 years of rental history so I'm gonna push the agent to dig up as much of it as possible.
This is no five-star property, but it's less than a block from the fishing pier, ground zero for Tybee tourism, and walking distance from most of the bars, restaurants, good beaches, etc. I gather as long as the entire area is open for business, it stays pretty full for 4 months a year.
My risk mitigation strategy is to make a deal in the off season at the lowest possible price, and time the closing just before the season kicks off, maximizing initial returns and putting that account in a surplus (theoretically a permanent one). Analysis will focus on validating that forecast, based on the most detailed financials I can get.
I may also factor expected personal use into the return since it's a favored destination and I've visited many times.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Vacation Rentals
« Reply #3 on: December 09, 2015, 07:48:42 AM »
Following. Only speculate with money you can afford to lose.

elaine amj

  • Magnum Stache
  • ******
  • Posts: 3116
  • Location: Ontario
Re: Vacation Rentals
« Reply #4 on: December 09, 2015, 07:55:26 AM »
I keep thinking of doing something like this in a favored vacation locale. But I've never really heard too many positive investment reviews.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Vacation Rentals
« Reply #5 on: December 09, 2015, 10:55:17 AM »
Only speculate with money you can afford to lose.
+1. I'm averse to speculative plays in general and probably wouldn't do one here.
*****************************************************************
I just got some initial feedback - listing agent says $16-18K after 30% onsite management fees (includes ads, booking, cleaning, etc). Association fees are $3300 and include insurance (may still need additional coverage of my own) and all utilities. Last year's prop tax was under $1K. Maintenance should be fairly low on 338SF of cinder block and generic fixtures, but then again, any building issues could be passed on to owners via special assessments or fee increases. If I assume another $3K/yr we're down to $8-10K (plus free use, sticking to shoulder seasons to avoid blocking out high-rent days).
This is looking like a potential winner with the right financing.

The background I've pieced together so far: built in 1999, condo development failed, bought out by a local investor and operated as a hotel, legally remained condos and have been resold variously to other investors and individuals. There are several listed at $99K with an agent who tried to steer me into the $200-400K range despite lower cap rates (classic upselling, not going there), one at $89K with reserved parking, and one at $86K with no parking. There's also apparently more inventory unlisted, to avoid flooding the market. Most of the present batch were offered at $139K this spring and dropped to $99K in midsummer, but I don't know if any sold. The $89K unit, probably my first pick, has been online ~120 days and may be on its second listing at this price. Internally, they're supposedly all about the same - decent condition, furnished, in operation now.

The slack market tells me they're still overpriced, and I may try testing the seller's motivation when I'm ready. So far so good.
« Last Edit: December 09, 2015, 10:57:31 AM by zephyr911 »

calimom

  • Pencil Stache
  • ****
  • Posts: 996
  • Location: Northern California
Re: Vacation Rentals
« Reply #6 on: December 10, 2015, 03:05:42 PM »
Is this a place you personally like to vacation?  As in, could you realize whatever financial benefits (income, appreciation, tax deduction) as well as use the unit/s in off-peak times for your own enjoyment?

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Vacation Rentals
« Reply #7 on: December 11, 2015, 10:38:28 AM »
Is this a place you personally like to vacation?  As in, could you realize whatever financial benefits (income, appreciation, tax deduction) as well as use the unit/s in off-peak times for your own enjoyment?
Yes, and I had already made a resolution to get to the beach a minimum of 2x annually before I started thinking about this. I'm a beach kid through and through, and I'll always miss it, for as long as we stay where we are.
Retail value is probably still close to $100/day even if I stick to shoulder season.

So I do think I may factor personal use into the return, with caveats:
1) We will probably move from the SE to the West Coast in 5-10 years, so it wouldn't be a lifetime benefit.
2) If I visit more because it's "free", I can't really call that an investment return, and I'd end up incurring more transportation costs as a result. So I have to be careful in how I evaluate that. I'm inclined to count about 6 days, even though owning it might tempt me to visit much more, and discount the retail value by about 50% for uncertainty.

hoping2retire35

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Location: UPCOUNTRY CAROLINA
  • just want to see where this appears
Re: Vacation Rentals
« Reply #8 on: December 26, 2015, 08:48:56 PM »
This sounds like a decent deal even if you were not trying to use as a vacation home.

If I remember correctly you can use a rental 14 days per year for personal use and still the tax breaks(mainly depreciation).
https://www.irs.gov/publications/p527/ch05.html

LiveLean

  • Pencil Stache
  • ****
  • Posts: 770
  • Location: Central Florida
    • ToLiveLean
Re: Vacation Rentals
« Reply #9 on: December 27, 2015, 06:08:23 PM »
I have a second home/rental property that's rented mostly from June-September on a weekly basis -- management company that manages hundreds of homes and condos in this community. I just finished my year-end numbers today.

The only thing that makes it worthwhile for me is that I use it for the two weeks (absolutely love the place), let family members use it when it's unoccupied -- and, yes, some prime weeks will go vacant -- and view it as a future FIRE home. Otherwise the work wouldn't be worth it. Sure, the management company "manages" it, but the wear and tear is brutal and I usually spend much of the time I am there playing hide-and-seek for stuff that's been misplaced and fixing stuff that's been "repaired" by tenants so that nobody notices.

If I viewed it only as an investment, I would have cashed out already -- I bought it foreclosure 18 months ago and could sell for 40 percent profit -- but I'm holding on for reasons above. I see people try to make the numbers work as investments and inevitably the homes are on the market again in 2-3 years.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3628
  • Age: 41
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Vacation Rentals
« Reply #10 on: December 28, 2015, 01:28:38 PM »
Our agent pulled the 2014 numbers for 4 units: none were even close to the rent claimed by the listing agent I had talked to. Instead of $16-18K after fees, they show $7-12K. It's a huge spread and we don't have much information on why one gets so much more than another. But even the best case now shows a single-digit cap rate instead of 25-30% or more. Not worth going out of state with all the extra hassles involved, unless something new comes in.

I had originally suggested the LLC pass on the area because the multiples wouldn't work out, then turned us back onto it based on that information. If it turns out that we did all this analysis over one bad data point, I'm gonna be a little peeved.

hoping2retire35

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Location: UPCOUNTRY CAROLINA
  • just want to see where this appears
Re: Vacation Rentals
« Reply #11 on: December 29, 2015, 09:05:16 AM »
Our agent pulled the 2014 numbers for 4 units: none were even close to the rent claimed by the listing agent I had talked to. Instead of $16-18K after fees, they show $7-12K. It's a huge spread and we don't have much information on why one gets so much more than another. But even the best case now shows a single-digit cap rate instead of 25-30% or more. Not worth going out of state with all the extra hassles involved, unless something new comes in.

I had originally suggested the LLC pass on the area because the multiples wouldn't work out, then turned us back onto it based on that information. If it turns out that we did all this analysis over one bad data point, I'm gonna be a little peeved.

I gotta admit when you first posted the numbers I was wondering what you left out or if there was a known liquor store to sell to under-age college/ high school kids or something. Way too much money for a $100k beach place. My cap rate is a little high but it is a small development and not well known, but not a beach place which always have low caps.

If you think you would use a place a lot and the difference you would get invested somewhere else is less than what you would spend renting a beach house then it makes sense to get a place. Those numbers get a little tricky when you think about how much you would use it if you owed it compared to how much you would rent it if you only had to pay for it to book a reservation.

Reminds of when I did the calculations for getting a keg. The beer is 25% cheaper in the keg but how much more will I drink if I get the keg. Yes there are savings but it goes to more  beer; in your case it goes to more beach.