Author Topic: Vacation Rental - Mustachian? Viable investment?  (Read 1932 times)

goofiefoot

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Vacation Rental - Mustachian? Viable investment?
« on: August 31, 2016, 03:33:14 PM »
My wife and I love to get away to Rockport, on the Texas coast, usually about 2-4 times a year.  Typically, we rent a home for a few days to a week, and enjoy kayaking, fishing, and living the slower coastal life.  Having success with our two rental homes in Austin, we've been considering purchasing a coastal home that could be rented out to vacationers, and that we could use when we're down there (it's all about saving money, right?). 

Rockport is a great little town that has tourist attraction year-round.  There's decent, and varied, inventory in the area - some on-water, some off.  Rental prices are fairly affordable, and most rentals we've seen appear to be booked consistently.  With the houses we would probably consider, nightly rates are around $175-250/night.  $250k can buy a decent off-water home within walking distance of attractions, restaurants and shopping.  Doing some rough calculations, we could rent a $250k house for $200/night for 90 nights and break even on annual PITI.  Of course, that doesn't include maintenance, improvements, or repairs.  90 nights sounds completely doable, and has the potential for some decent income if it becomes a popular rental.

I'd love to hear some thoughts from any vacation rental owners on how this type of situation has worked for you.  We have a realtor friend in that area that's keeping an eye out for the right place for us, and we plan to contact some of the rental brokers in the area to review their services as well as get an idea of expected occupancy.  Any advice is greatly appreciated!

LiveLean

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #1 on: September 01, 2016, 10:31:36 AM »
We have a similar situation in that we live in Florida but have a weekly vacation rental in Virginia Beach.

The key is that you want to use it yourself and love the place. If you're looking at it just as an investment, it would probably drive you nuts and not be worth the trouble from 1,000-plus miles away. (We're 850 miles away). Our home is in a community of hundreds of rental homes and the management agency takes 18 percent. Plus the tenants crank the AC and use tons of water during the three months it's mostly rented -- July, August, September.

Maintenance, improvements and repairs take more time and money than expected. We find we end up spending a lot of our time at the house working on it.

goofiefoot

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #2 on: September 01, 2016, 10:53:58 AM »
We have a similar situation in that we live in Florida but have a weekly vacation rental in Virginia Beach.

The key is that you want to use it yourself and love the place. If you're looking at it just as an investment, it would probably drive you nuts and not be worth the trouble from 1,000-plus miles away. (We're 850 miles away). Our home is in a community of hundreds of rental homes and the management agency takes 18 percent. Plus the tenants crank the AC and use tons of water during the three months it's mostly rented -- July, August, September.

Maintenance, improvements and repairs take more time and money than expected. We find we end up spending a lot of our time at the house working on it.

Great points!  Our goal with any of our rentals is to purchase a place we'd be happy living ourselves.  Both our local rental homes are great floorplans, and feed to decent schools, and if we had to sell our main residence, we'd be comfortable living in either.  This is even more important with a vacation place.  We're only 200 miles away from Rockport, so getting down there isn't as much of an issue, but we certainly want to enjoy ourselves when we're there.

Management fees and higher utility costs were on my radar, but it's good to hear real-world experience to help with budgeting.  I fully expect to need to work on the house when we're there, but I enjoy that type of work, and we have family capable of pitching in when they stay as well.  The closer proximity makes that a little easier, too. 

I'm curious, with Virginia Beach being fairly temperate, if you get many longer-term winter rentals?  A friend of mine just bought a house in Rockport, and he's got it fully rented month-to-month  January to March this coming year.  We have a lot of northerners (snowbirds) that come down in the cooler months, and I'd love to target that market.

From an investment standpoint, do you feel you've spent your money wisely?  Are you getting enough enjoyment and/or income from the property to justify it? 

Thanks for your insight!


Ensign1999

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #3 on: September 01, 2016, 11:09:34 AM »
I'd continue to take a strong look at your operating costs.  It is great that you are willing and able to take care of some of the maintenance while you are on vacation at the place, but there are many other costs.  Some that come to mind:
-Management (someone already mentioned this could be as high as 18%)
-Cleaning (unless it is included in the management, this will need to be done after every guest)
-Higher maintenance due to heavy use...renters have no ownership of the property and treat it as such.  You get some great ones that will treat the place as their own, but others will abuse the place.  This can drive up your costs.

I would also talk to a CPA about any tax implications.  If you just take in enough to offset your costs, odds are there is little or no impact other than having to file in a different state, but it is nice to go in knowing what you may or may not owe.

LiveLean

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #4 on: September 01, 2016, 06:49:37 PM »
We have a similar situation in that we live in Florida but have a weekly vacation rental in Virginia Beach.

The key is that you want to use it yourself and love the place. If you're looking at it just as an investment, it would probably drive you nuts and not be worth the trouble from 1,000-plus miles away. (We're 850 miles away). Our home is in a community of hundreds of rental homes and the management agency takes 18 percent. Plus the tenants crank the AC and use tons of water during the three months it's mostly rented -- July, August, September.

Maintenance, improvements and repairs take more time and money than expected. We find we end up spending a lot of our time at the house working on it.


I'm curious, with Virginia Beach being fairly temperate, if you get many longer-term winter rentals?  A friend of mine just bought a house in Rockport, and he's got it fully rented month-to-month  January to March this coming year.  We have a lot of northerners (snowbirds) that come down in the cooler months, and I'd love to target that market.

From an investment standpoint, do you feel you've spent your money wisely?  Are you getting enough enjoyment and/or income from the property to justify it? 

Thanks for your insight!

We could rent it out in the winter months, but the monthly rental rate from November-March would be 40 percent of a prime week in July or August. Not worth the wear and tear. We spend Thanksgiving week there then shut it down and have the pipes drained until reopening in late March.

The home is worth 35 percent more than we paid for it two years ago. It was a foreclosure, had been empty three years, online bidding, cash-only and it only worked for me since I know the area so well -- family had a place two blocks away when I was a kid -- and I had been looking for six years. Rental income is sufficient -- the area draws heavily from Pittsburgh and Ohio -- and we're able to spend a lot of time there now and will spend more after FIRE.

clarkfan1979

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #5 on: September 05, 2016, 09:44:59 PM »
My wife and I love to get away to Rockport, on the Texas coast, usually about 2-4 times a year.  Typically, we rent a home for a few days to a week, and enjoy kayaking, fishing, and living the slower coastal life.  Having success with our two rental homes in Austin, we've been considering purchasing a coastal home that could be rented out to vacationers, and that we could use when we're down there (it's all about saving money, right?). 

Rockport is a great little town that has tourist attraction year-round.  There's decent, and varied, inventory in the area - some on-water, some off.  Rental prices are fairly affordable, and most rentals we've seen appear to be booked consistently.  With the houses we would probably consider, nightly rates are around $175-250/night.  $250k can buy a decent off-water home within walking distance of attractions, restaurants and shopping.  Doing some rough calculations, we could rent a $250k house for $200/night for 90 nights and break even on annual PITI.  Of course, that doesn't include maintenance, improvements, or repairs.  90 nights sounds completely doable, and has the potential for some decent income if it becomes a popular rental.

I'd love to hear some thoughts from any vacation rental owners on how this type of situation has worked for you.  We have a realtor friend in that area that's keeping an eye out for the right place for us, and we plan to contact some of the rental brokers in the area to review their services as well as get an idea of expected occupancy.  Any advice is greatly appreciated!

What is the commission for the broker that is going to rent it out for you?

In my opinion, it's really only possible to make money doing this if you live local and do all the leg work yourself. It's more of a side business or second job. Not really a passive investment.

I have yet to see a scenario in which someone can make money and not live local. The commission is normally 20%-30% of all rents.

Have you thought about doing a 9 month lease and then rent it out weekly during the summer months? When I lived in San Diego, this was the norm for the beach homes in my area.


goofiefoot

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #6 on: September 07, 2016, 09:11:05 AM »
A realistic goal is to try to break even.  Making a profit would be gravy.  Calculating management, cleaning, and groundskeeping fees along with the nightly/weekly/monthly rental rate is crucial.  Good point on tax implications - I'll contact my CPA to get his thoughts.

We've seen some options of properties with multiple rentals - duplexes, fourplexes, homes with guest quarters.  Targeting this type of property, especially if some of the units can be leased to monthly tenants might make the numbers more appealing.  I've also seen acreage for sale down there, where with a little (a lot?) money up front, we could build RV pads for more income.  Who knows? 

At the end of the day, if we can find a nice little house to buy, and offset the cost by renting it out, we'd be happy.


jwright

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Re: Vacation Rental - Mustachian? Viable investment?
« Reply #7 on: September 07, 2016, 03:56:12 PM »
We are currently looking for a property with the same intent in Asheville NC.  The zone for short term rentals is small there, so the properties on the market in that zone are already being used for rentals.  We are asking the current owners for financial information on the performance of the property in this market.  Ideally, we'd use the same property manager already in place. 

Don't forget about furnishings and supplies.  If you are going to rent to vacationers you need, linens, silverware, shampoo, trashcans and everything else!  You'll also be paying the monthly utility bills based on your tenants usage.

We are planning to use the short term rental to offset carrying cost; luckily we won't have to make loan payments.  The economics wouldn't support that in most of the properties we've seen so far.