Author Topic: Should I purchase this condo to manage as a vacation rental?  (Read 2858 times)

cash2001

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Should I purchase this condo to manage as a vacation rental?
« on: April 17, 2019, 03:45:56 PM »
Aloha- I am eyeing an investment property on the Big Island where I currently reside that I would manage myself as a short term vacation rental. The property is a waterfront 2bd/2ba condo for 250,000 that allows short term rentals. I would put down the 50,000 down payment with 25k cash and 25k from a heloc from my primary residence which I would pay back as quickly as possible.

It is possible to search airbnb for the exact condo project so I know from research that I have been conducting every month for the past 16 months that these units have a very low vacancy rate. A two bedroom unit can rent for $115 a night with a three night minimum plus a $120 cleaning charge per booking. I would estimate the monthly mortgage payment PLUS hoa fee to be $1625 a month.

I have a real estate license and would not have to pay a buyers agent fees. My schedule is very flexible so I can do the cleaning and management myself. My husband and I both have steady work and already airbnb a room in our primary residence to offset the $1600 monthly mortgage we already have so we know what goes into renting to short term renters. We have no car loans, credit card debt, children or expensive habits.

Thoughts?

waltworks

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #1 on: April 17, 2019, 04:59:01 PM »
If you're doing a 3 night minimum, you are almost guaranteed to have a decent amount of vacancy, since you'll end up with lots of 1 and 2 night chunks between stays and those won't be bookable (that said, you don't want to deal with a 1 night stay, ugh).

I wouldn't count the cleaning fee, that's work (and sucky work at that) in your numbers.

Figure 65% occupancy to be conservative. So roughly $2300 gross a month. I don't know what investment property loan rates look like right now but I'd guess in the ballpark of 5%, so your $225k in loans will cost something like $1200 a month. Taxes and insurance, I'm not going to guess at, nor HOA, but take those out of your $1000 cash flow and you'll have a rough idea of where you're at...

...before maintenance and upkeep. Which will be considerable for a nightly rental. Linens, towels, small appliances... it will add up.

To me it does not sound appealing. Our experience with AirBnB was that it was a shitload of work for negligible extra money over just doing a long term rental (we're in a ski town, so there's a definite offseason, which is what killed it).

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Telecaster

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #2 on: April 17, 2019, 05:22:31 PM »
Posting to follow.   This is sort of a fantasy that I have.  I've done the back of the envelope a bunch of times, and it seems to make sense.  I'd really like to see how it works out in real life. 

waltworks

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #3 on: April 17, 2019, 05:34:00 PM »
Posting to follow.   This is sort of a fantasy that I have.  I've done the back of the envelope a bunch of times, and it seems to make sense.  I'd really like to see how it works out in real life.

We did the experiment and it was a death-of-1000 cuts kinda thing. I have tons of landlording experience and I had *no* idea how hard short-stay guests are on stuff (especially linens that have to be washed after every stay). People just throw wet towels on the floor and let them mold. They take toiletries. They track mud everywhere and burn cheese onto every available surface. They want free snacks and expect all sorts of minor services or they'll leave you a bad review.

They behave, now that I think about it, just like my family behaves in a hotel - like total slobs. Because someone else is going to clean it up.

That stuff adds up both in terms of money and stress, and we pulled the plug and rented the place long term.

IMO the nightly rental market is so saturated with innumerate people who think they're going to get rich that it's not worth doing right now in most markets. There is just too much dumb money out there. Just like (sigh) everything else.

-W

cash2001

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #4 on: April 17, 2019, 06:33:59 PM »
Thanks walt for the input. I am concerned that because my current airbnb rental is part of the home I live in, I am accustomed to guests being on their best behavior as I live on site BUT a condo unit may be left messier, even with the owner having the choice to leave them a crappy review.

That is also a great point about having gaps with three night stays. I would be willing to put in the work for two night stays to close in the gaps when necessary because I do believe that many guests to this area do stay for up to a week or more, especially upon stalking the availability calendars of other vacation rental units in the same complex ;)

Papa bear

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #5 on: April 17, 2019, 07:44:53 PM »
How close to this property are you? I know you said big island, but how far in distance? 

From a friend of mine that short term rents ski are properties.

You need to have a phenomenal cleaning crew that you trust.  They will be invaluable to giving you info after a guest leaves.  Try to manage a lot of this with WiFi enabled products, like locks, outdoor cameras, etc.

Also note, this property will be a schedule C rental, not schedule E. 


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feelingroovy

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #6 on: April 18, 2019, 06:42:36 AM »
I have no personal experience with short term rentals, but Paula Pant did this blog series on her experience. You may find it helpful.

https://affordanything.com/airbnb-experiment-impulsively-started-vacation-rental-business/

waltworks

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #7 on: April 18, 2019, 08:17:08 AM »
2nd that recommendation to read the affordanything post(s) about her experience. We found it extremely helpful (and in the end, like her, swapped back to long term renting).

-W

K-ice

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #8 on: April 18, 2019, 07:16:57 PM »
Check the condo board doesn't have a X night minimum. Some are as high as 5 nights. You probably wont have a problem finding people to stay that many nights but that may make it harder to fill in the gaps between visits. I know top property mgmt. companies boast 70% occupancy as a good target. I know someone who shelf manages a ground floor waterfront which is 85% full.

As someone who books AirBnB, I do appreciate lower cleaning fees, keeping it under $100 may help attract guests.

Otherwise it sounds pretty exciting. Waterfront in Hawaii for $250,000!

K-ice

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #9 on: May 28, 2019, 12:13:23 AM »
Any updates?

Iím combing the threads for advice on vacation properties. You are crunching the numbers & are planning it as an investment. Iíve aleays had the unmustacian desire to have a vacation property, but might not even rent it out.

Anyway, you already live in paradise, Iím just wondering if you own a little more of it.


cash2001

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #10 on: June 05, 2019, 04:33:52 PM »
I have not purchased the rental unit yet. I am now rethinking my strategy to buying a 3bd/2ba slight-fixer down the street from my primary residence to rent out long term with int rates so low and rentals being in very very high demand in my neighborhood...I will keep everyone posted! I did just return from a 2 week vacation in Malaysia which has given me so much inspiration to become an investor and quit my god damn soul sucking day job!

SeattleCPA

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #11 on: June 06, 2019, 07:22:01 AM »
Maybe I missed in above discussion, but short-term vacation rentals provide a way to sidestep the passive loss limitation rules which stop high income taxpayers from using real estate to shelter taxes and which limit the tax shelter benefit from real estate for everyone else.

https://evergreensmallbusiness.com/vacation-rental-tax-shelters/

I.e., the situation in a nutshell: assuming your average rental period is 7 days or less and that you pass the material participation test, you aren't limited in your loss deduction.

P.S. These short-term rental deals don't necessarily go on Sch C. Depends on the level of service... daily cleanings or a breakfast, for example, put the activity on Sch C I think... but if you're cleaning after guest checks out, I think that's often going to be Sch E.

evme

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #12 on: April 06, 2020, 04:10:16 AM »
@cash2001 -- any update? Curious to hear if you ended up buying a condo and if so how it went.

Dicey

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #13 on: April 09, 2020, 02:48:59 AM »
@cash2001 -- any update? Curious to hear if you ended up buying a condo and if so how it went.
Me too, so double ping @cash2001.

cash2001

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #14 on: April 13, 2020, 03:30:40 AM »
Hi! thanks for the ping...my husband and I decided against purchasing the condo as a vacation rental last year and feel pretty lucky to have made that decision as Vacation rentals in Hawaii must cease operations starting tomorrow. Instead, I started my own business as a Realtor and we turned our large laundry room with huge bathroom and separate entrance into a private airbnb space. Either way, virtually no tourism in the aloha state right now.

Now when the REFI on our primary residence is completed and "things go back to normal", I will certainly be looking into it again.

Dicey

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Re: Should I purchase this condo to manage as a vacation rental?
« Reply #15 on: April 13, 2020, 06:52:56 AM »
Hi! thanks for the ping...my husband and I decided against purchasing the condo as a vacation rental last year and feel pretty lucky to have made that decision as Vacation rentals in Hawaii must cease operations starting tomorrow. Instead, I started my own business as a Realtor and we turned our large laundry room with huge bathroom and separate entrance into a private airbnb space. Either way, virtually no tourism in the aloha state right now.

Now when the REFI on our primary residence is completed and "things go back to normal", I will certainly be looking into it again.
Wow! I think you might have dodged quite the bullet on that one. Good decision(s). Thanks for the update.