Newbie looking @ vacation rental as first investment purchase
New to Real Estate · Farmington, CT · Member since 2020 · 23 posts · 6 votes
I'm super green with everything to do with REI. I'm more excited than fearful at this point which is why I know I'm ready to jump in and look for my first investment property. I started learning more about real estate when I decided to look into buying a vacation home in upstate NY several months back. I picked up the ABCs of Real Estate Investing and then two more books and now I'm hooked.
Does anyone deal with vacation rentals as their main investment? Is this a good idea for a newbie? What are the major cons of this type of investment property? One I have found already is the hefty down payment required.
I'm currently looking at a property in the Catskills that isn't on the market yet. It is in a great location, beautiful setting and appears to be good rental opportunity from what I have researched. However, again, I'm brand new to this and I know there are no guarantees but any advice and or suggestions would be much appreciated. Thanks!
I'm super green with everything to do with REI. I'm more excited than fearful at this point which is why I know I'm ready to jump in and look for my first investment property. I started learning more about real estate when I decided to look into buying a vacation home in upstate NY several months back. I picked up the ABCs of Real Estate Investing and then two more books and now I'm hooked.
Does anyone deal with vacation rentals as their main investment? Is this a good idea for a newbie? What are the major cons of this type of investment property? One I have found already is the hefty down payment required.
I'm currently looking at a property in the Catskills that isn't on the market yet. It is in a great location, beautiful setting and appears to be good rental opportunity from what I have researched. However, again, I'm brand new to this and I know there are no guarantees but any advice and or suggestions would be much appreciated. Thanks!
Some down sides to a vacation rental as a newbie investor are:
- Large 20-25% down payment
- Management heavy, maybe even 30% of Rent
-You don't have as much control
Im a big believer in starting out local, getting your hands dirty a bit, learning the basics, then fine tuning your investment criteria and strategy.
I'm super green with everything to do with REI. I'm more excited than fearful at this point which is why I know I'm ready to jump in and look for my first investment property. I started learning more about real estate when I decided to look into buying a vacation home in upstate NY several months back. I picked up the ABCs of Real Estate Investing and then two more books and now I'm hooked.
Does anyone deal with vacation rentals as their main investment? Is this a good idea for a newbie? What are the major cons of this type of investment property? One I have found already is the hefty down payment required.
I'm currently looking at a property in the Catskills that isn't on the market yet. It is in a great location, beautiful setting and appears to be good rental opportunity from what I have researched. However, again, I'm brand new to this and I know there are no guarantees but any advice and or suggestions would be much appreciated. Thanks!
Some down sides to a vacation rental as a newbie investor are:
- Large 20-25% down payment
- Management heavy, maybe even 30% of Rent
-You don't have as much control
Im a big believer in starting out local, getting your hands dirty a bit, learning the basics, then fine tuning your investment criteria and strategy.
I do not have any vacation rentals, but I have looked into some. I actually looked into one, in a foreign country, as my first investment and glad I ended up with something local instead. It can be a lot more hands on, more capital intensive, and may be a bit more of a task when just starting out. I do recommend a first investment to be something that you can roll up the sleeves and get your hands dirty with, managing everything yourself. Once you get a feel for it, you can then explore out to other asset types.
If this vacation rental is close by and something you can/want to manage yourself, I would definitely consider and give it a shot if the financials make sense and property checks out! As long as you are making money on it, I think you'll definitely learn a lot from it being more of an active investor.
Thanks for the feedback Steven! The distance aspect does concern me especially doing this for the first time. Also, what you mentioned about property management. It could eat away at a lot of what I would bring in for rental income.
What did you do for your first investment property?
I do not have any vacation rentals, but I have looked into some. I actually looked into one, in a foreign country, as my first investment and glad I ended up with something local instead. It can be a lot more hands on, more capital intensive, and may be a bit more of a task when just starting out. I do recommend a first investment to be something that you can roll up the sleeves and get your hands dirty with, managing everything yourself. Once you get a feel for it, you can then explore out to other asset types.
If this vacation rental is close by and something you can/want to manage yourself, I would definitely consider and give it a shot if the financials make sense and property checks out! As long as you are making money on it, I think you'll definitely learn a lot from it being more of an active investor.
The rental is about 3 hours from me so it definitely wouldn't be easy to just jump over there anytime especially with working FT. I know I'm going to make a lot of learning mistakes the first time but I also don't want to add on any unnecessary headaches. The appeal is the location and the numbers but obviously there is more to consider than that.
What did you invest in when first starting out? I'm also trying to figure out what is best in my area too. The whole house hacking idea is appealing to me too. Thanks!
@Alyssa Czopor congrats on deciding to make the plunge into real estate. It sound like you've done a lot of homework leading up to this point.
Did you factor in management costs when running the numbers? On weekly turnover style rentals you'll find their fees to be hefty.
I, like many others on this site got my start in real estate with an owner occupied small multifamily property. Living at the property will allow you to learn the most, your acquisition costs will be more attractive, and by properly maintaining the home you'll in a small way be improving your community.
Best of luck, -Steve
I do not have any vacation rentals, but I have looked into some. I actually looked into one, in a foreign country, as my first investment and glad I ended up with something local instead. It can be a lot more hands on, more capital intensive, and may be a bit more of a task when just starting out. I do recommend a first investment to be something that you can roll up the sleeves and get your hands dirty with, managing everything yourself. Once you get a feel for it, you can then explore out to other asset types.
If this vacation rental is close by and something you can/want to manage yourself, I would definitely consider and give it a shot if the financials make sense and property checks out! As long as you are making money on it, I think you'll definitely learn a lot from it being more of an active investor.
The rental is about 3 hours from me so it definitely wouldn't be easy to just jump over there anytime especially with working FT. I know I'm going to make a lot of learning mistakes the first time but I also don't want to add on any unnecessary headaches. The appeal is the location and the numbers but obviously there is more to consider than that.
What did you invest in when first starting out? I'm also trying to figure out what is best in my area too. The whole house hacking idea is appealing to me too. Thanks!
I invested in commercial retail, which I knew absolutely nothing about. The only thing that made sense were the numbers. Lots of learning, mistakes, headaches, etc. along the way, but I would do the same thing all over again for that experience. If you have the ability to do a house-hack, that can be a great option.
@Alyssa Czopor VRs are an excellent way to profit!The downside is it’s much more active than LTRs and is quite the learning curve. The upside is your gross revenue can be 2-4x the monthly gross of a LTR. I can not speak to that specific market but you can absolutely self manage remotely with the right tools and some fuidance. Lots of people here on BP self manage remotely, including myself from 2,000+ miles away. So, if you really want to juice your returns, don’t mind learning an active business, have some time freedom then VRs might be right for you. If not, going with a LTR might be the better approach for you. Depends primarily on your goals and available time imo.
@Alyssa Czopor VRs are an excellent way to profit!The downside is it’s much more active than LTRs and is quite the learning curve. The upside is your gross revenue can be 2-4x the monthly gross of a LTR. I can not speak to that specific market but you can absolutely self manage remotely with the right tools and some fuidance. Lots of people here on BP self manage remotely, including myself from 2,000+ miles away. So, if you really want to juice your returns, don’t mind learning an active business, have some time freedom then VRs might be right for you. If not, going with a LTR might be the better approach for you. Depends primarily on your goals and available time imo.
Thanks for the insight. What tools have helped you be the most successful? I'm trying to learn as much as I can so if there are any resources you can suggest, that would be great! I'm not too far away from this property but far enough I think it could get overwhelming quickly if I don't have the ability to manage things from a distance. I'm still in that 9-5 job type situation (for now) so I won't be able to get up and go to the property at a moment's notice. I'm trying to be as smart about this as possible. The pros of the VRs are pretty appealing though.
@Alyssa Czopor congrats on deciding to make the plunge into real estate. It sound like you've done a lot of homework leading up to this point.
Did you factor in management costs when running the numbers? On weekly turnover style rentals you'll find their fees to be hefty.
I, like many others on this site got my start in real estate with an owner occupied small multifamily property. Living at the property will allow you to learn the most, your acquisition costs will be more attractive, and by properly maintaining the home you'll in a small way be improving your community.
Best of luck, -Steve
Thanks Steve! I'm really excited about diving into this. Amazing how many naysayers there are out there when I mention my plans for REI. It's nice to have some encouragement and positivity.
I didn't factor in the management costs... I wasn't sure what that would look like for VRs and naively, I thought maybe I could do it all myself but the more I'm reading and hearing from people, it's probably not feasible since I'm not a short drive away from this property I'm interested in. This property actually has good flip potential but I'm not sure I want to do that yet.
I hear a lot of people saying the live in rentals are the way to start out. It sounds like it could offer a lot of the education and experience I need starting out.
Vacation rentals can be lucrative but there are few extra things to consider :Larger down payment, higher interest rate,Insurance, and MAINTENANCE. It can easily turn in to a full time job. If you are 3 hours away, it becomes more difficult UNLESS you find a trusted manager/rental company- but that would eat into your profits. You could use VRBO etc but the reviews can derail the process. you have work extra hard to make the guests "happy" . As a newbie, it is better and easier to start with a SFH or duplex, which is not too far. Most important thing is to make sure the numbers work for you. Goodluck.
@Alyssa Czopor I use the following to self manage remotely: keyless entry, wifi thermostat, ring flood camera, iPhone, Airbnb/Vrbo, Beyond Pricing (dynamic pricing), Your Porter for automated guest communication. Most importantly you need a great cleaner and a handyman on speed dial. The important thing is to be able to respond in a timely manner via text message to guest questiond, your cleaner, etc. You have to deal with an occasional issue, ie your cleaner tells you something is broken that needs fixing, etc. so you message your handyman. It does not require a ton of time but ability to engage quickly when needed, ie via texting or an occasional call or two. Time flexibility is key, ie the ability to stop and take 5-10 minutes to deal with something. The rest of it can be learned.
@Alyssa Czopor hi - did you read the long term investment book by David Greene by chance? That book has solid information on how you can get started while being out of state.
If you are investing from afar, short term rentals / vacation rentals are a fine strategy to start with *IF* you have the right management company. They can guide you on the best areas to target and give you comps on how much it can make based on the areas averages.
*Too many people manage their short term rentals to “save” money from the management fees The reality is that a good vacation management company will make you more money as most host don’t know how to price their units correctly, they under or over price it, therefore leaving money on the table*.
There is a whole science to it, there are multiple tools for pricing for this reason. You need to know the markets numbers and demand to price your places accurately and therefore make them profitable.
Regarding the place you’re interested in, run the numbers and see how much you can make. Then reach out to a local (I don’t recommend the big ones) vacation rental management company and see what numbers/comps they give you. Make your decision after that.
@Brian Gerlach
This information is super helpful! My husband and I are considering a vacation rental as our second investment.
@Alyssa Czopor
Hey Alyssa - I think your first investment should be whatever you feel most comfortable with managing. We considered a VRBO as our first, but then we started thinking about the management of the property at a distance and the cost of furnishing it, and there seemed to be so many unknown factors which deterred us. We decided to go with a SFH as our first, but are still leaning towards the VRBO option for our second due to the increased cash flow.
Whatever decision you make will be the best for you. Good luck in starting your journey into REI.
Thanks for the feedback, really helpful. Seems like the major obstacle and deterrent is needing someone to manage the property. I need to find out more about that before I can make any decisions.
@Alyssa Czopor
Hey Alyssa - I think your first investment should be whatever you feel most comfortable with managing. We considered a VRBO as our first, but then we started thinking about the management of the property at a distance and the cost of furnishing it, and there seemed to be so many unknown factors which deterred us. We decided to go with a SFH as our first, but are still leaning towards the VRBO option for our second due to the increased cash flow.
Whatever decision you make will be the best for you. Good luck in starting your journey into REI.
Thanks for the encouragement! :) How has your first investment property been working out for you?
@Alyssa Czopor hi - did you read the long term investment book by David Greene by chance? That book has solid information on how you can get started while being out of state.
If you are investing from afar, short term rentals / vacation rentals are a fine strategy to start with *IF* you have the right management company. They can guide you on the best areas to target and give you comps on how much it can make based on the areas averages.
*Too many people manage their short term rentals to “save” money from the management fees The reality is that a good vacation management company will make you more money as most host don’t know how to price their units correctly, they under or over price it, therefore leaving money on the table*.
There is a whole science to it, there are multiple tools for pricing for this reason. You need to know the markets numbers and demand to price your places accurately and therefore make them profitable.
Regarding the place you’re interested in, run the numbers and see how much you can make. Then reach out to a local (I don’t recommend the big ones) vacation rental management company and see what numbers/comps they give you. Make your decision after that.
Thanks Sofia! I haven't read that book yet but it is in my Amazon book list so I'll pick up. I definitely need to learn more about pricing and also what management companies are in the area, what they charge, etc. The pricing for VRs seems to be much different than other rental properties.
Such great information! Thank you for sharing this.
@Alberto Nikodimov what systems/technology do you use to help you manage that many STRs? Do you use a virtual assistant or did you hire someone? How are things structured in your biz? I’m interested in scaling!
Hi @Brian G., thanks for reaching out! In regards to the software, it really depends on how many properties you are currently managing. I would recommend different software for different sizes businesses.
I will be happy to share how we grew step by step. I will send you a message.
Vacation rentals can be a great source of income. However, the management is much more involved, and different municipalities are making different rules about short term rentals, so be sure you know the market where you rental is. It sounds like you know how to do your research, which is important. Maybe pick up a book specifically on short term rentals. It is also a good idea to get involved with a network of other real estate investors. Check out Meetup in your local area, and try to find people around you from whom you can ask questions and learn.
I have also heard the advice to start local, so you can be more hands on when you are starting. However, I live in a very high cost area, so that is not really an option. I say this because I want to affirm for you that there are certainly instances when it is advantageous to begin NOT in your local market. Just be aware that there will be more risk associated with the greater distance, and lack of connections where your property is located.
I admire your enthusiasm and want to encourage you to go ahead and get started. It's ok to make mistakes, you have to be in the game to win the game. I do highly recommend trying to build a network of people to support you through this process however.
They can be a great moneymaker, follow these two rules.
1. Ensure you invest in an area that encourages short term rentals and won't make an ordinance against soon after purchasing.
2. Underwrite you property so it can perform both in a short term capacity AND as a longer term rental.
Good advice from Justin^ and everyone else. There is no one right way to do this. Great job reading up and doing your homework! If the numbers work go for it! If you are a pro member here at BP they have an airbnb calculator. Run those numbers and know that it can be A LOT of work. A lot more work than having a LTR. But can be way more profitable.
Starting with a SFH/duplex is probably a better option. Once you get some experience, you could venture into vacation rentals.In might be difficult to find good cash flowing SFH in CT ( taxes and Insurance are higher than other states).you might end up with long distance investing. David Greene's book on Long Distance investing is one of the best.Among all variables, finding the right property at the right price and a good property management team would top the list. Good luck. Balaji