Weekly Beach Rental -- Year-to-Year Variances

[LiveLean]

We're in our first full season of owning a weekly beach rental property. It's something of a second home - we use it two-plus weeks a year - and it's our future FIRE home.

We're not totally new to this in that my parents owned a home in this same community - VA Beach - when I was growing up in the 1980s and we (wife and I) are using the same management company. House rents mostly weekly from Memorial Day through September. After buying the (foreclosed) home in early July last year, we worked furiously for three weeks to get it furnished and in shape. The management company was able to book it solid on short notice for August and September.

Apparently 2015 is a bad rental season because of the brutal winter, which pushed back school calendars and caused some parents to take vacation days to be home during snow days. So the management company has urged owners to discount their rates 10, 20...even up to 40 percent depending on the week. We've done that, with some degree of success, but we've already had one empty week (this week) and still have a couple of open weeks in August and a wide open September. (Some bookings can come last-minute; they booked July 4-11 yesterday and July 11-18 last week.)

Question for those who have weekly beach rentals (or weekly rentals in general)  -- how much do your rentals/income vary from year to year? And do you ever discount rates? If so, what works for you?

[former player]

As I understand it (I've spoken to holiday management companies about possibly renting out a house as a holiday home), if you have a desirable holiday rental your clients will often return year after year for the same week: after three years you should have a solid list of "repeaters" for high season weeks who will probably book fairly early - sometimes booking for the following year immediately on finishing the current year's holiday.  That's in the UK, though, so your case might be different - but if you can get regular clients, that would be good.  Perhaps try to find out what your clients think of your place and whether there is anything that needs doing to encourage them to come back?

What put me off the holiday rental idea was that there are now fairly strict rules in the UK on taking children out of school during term-time, which means that the rental "season" for a family home is shorter than it used to be - no families with school age children will want to rent in September, for instance, which means that your target market is much more limited - families with children under school age, or couples, or dog walkers, etc.

The benefit of vacant weeks is that they are available to use yourself.

[arebelspy]

Posting to follow.

10-40% discount and higher vacancies sound painful; sorry. =/

[waltworks]

I have never owned a short-term rental but it sounds like you already have an answer to your first question - if a cold winter can affect things that much, imagine a bad year for the stock market (I'm assuming this is a relatively high end rental that relatively wealthy families are renting?)

I don't have much input on what works to keep the place rented, but I'd look atlowering the rental rate across the board for all future bookings - there is a sweet spot between price and occupancy and it sounds like you are on the high side where you're dealing with a lot of vacancy. In a few years, you can look at raising prices for certain weeks, and hopefully you'll have some more experience with what to expect.

Unless you bought the place with a specific plan and hard numbers in mind to make money, you may be looking at a slow bleed situation, which is fine if you're going to eventually live there and/or you feel like the 2 weeks a year you use it is worth the price. But if you are really losing money, it might be time to bail and call the hard-earned lesson your profit.

-W

[LiveLean]

Actually, we're in good shape either way. Even though we live in Florida, I've followed this particular VA Beach market literally all my life since my family owned a place there for 20 years. I searched for properties for six years before purchasing what I believe was the best buy in the area in 10 years (crazy online foreclosure auction of a house that had been empty for three years that scared a lot of people away).

Management company gave me what I knew to be an ambitious pro forma of $55K in gross income for 2015. That was renting it out year round -- it rents for relative peanuts from November through March. I found it more cost effective to shut it down for that period. So my maximum gross for 2015 is $47K. I have $26K booked with the potential to get to $40K if the rest of August and September come through. Still would rather be closer to $47K -- and getting to $40K is far from a given.

So, yeah, it's kind of a unique situation. Plus we use it ourselves and, for weeks like this when it's vacant, I have nearby relatives I let use it. So there's value there, too.

For anyone who follows Virginia politics, my home is three blocks from where former VA governor Bob McDonnell bought two rental homes at the height of the market. That cash crunch contributed to the financial pressures that led to his demise. So, yeah, we carefully crunched the numbers.

[Another Reader]

Vacation rentals operate more like hotels than long-term rental houses.  Hotels plan for variable occupancy, allowing for changes in things like the weather and the economy.  When things are good, occupancy and room rates are high.  When the economy goes south, or hurricanes are predicted, occupancy drops as do rates.  If you own a property like this, your numbers need to work when you have a really bad year. 

The hotel business is highly volatile and widely varying revenue is why so many are foreclosed on or are in loan workouts.  You see the names ("flags") change when Company A sells the property to Company B because their business model isn't working and the property needs to be renovated and marketed to another segment of consumers.  The vacation rental business shares a lot of the same operating issues, but on a smaller scale.

If you depend on high occupancy and rents to pay the mortgage and other property expenses of a vacation rental, that is a very risky plan. 

[arebelspy]

And bottom line: keep lots and lots of cash reserves for the bad years.  :)

[waltworks]

You've followed this market your whole life, now you have your *first vacancy ever*, and you are freaked out enough that you are asking random people on the internet why you aren't making the money you thought you would? Ok.

It sounds to me like the management company was trying to sell you on this and wildly overestimated the revenue.

My advice is the same: if nobody is renting, lower your price. And plan on some very bad years if this year is that far below projections.

-W