Starting Out Huge, 1.45M Investment Property Opportunity

[Chris Vicari]

The Basics: I've been watching the micro-climate that is San Diego's short-term vacation rental market since I moved there in 2015. I have numerous friends who rent out their primary residence and completely cover their annual costs through rental income. My work is entirely overseas for about 190 days a year. 

The Property: San Diego, 1.5 miles from Ocean Beach, established neighborhood. 3bed/3bath with detached casita income property, ~3900 square feet on 9,000 square foot lot, waterfall and pool as central feature inside primary residence, very high end finishes and priced at 1.45M, almost $200-300 less per square foot than any near comps. The ultimate bachelor pad. 

Finances: 30 y/o (newly) single male, owned 2 houses, 750 FICO, $150k cash, $100k in 401k/IRA. $170k annual gross in income and $12k annually from the VA, with no debt or payments to the ex.

The 1.5 Million Dollar Question(s): 

• Is it reasonable to expect I can cover costs and perhaps even generate a profit by renting out my home and the casita when I'm away and staying in the casita part time when I am stateside to justify such an expense? 
• Hard Money Lenders, Traditional/VA Jumbo Loan, or find a business partner that wants to invest and potentially live there with me?
• How would you go about securing financing for this?

I'm a long time reader and a first time poster, I've ran the rental calculator and determined that my costs would be around $120k annually all-in. I can't cover that without rental income but due to the uniqueness of the property, I believe I can get 60% or higher occupancy rates for a median rate of $700-900/night annually, with outliers north of $3,000/night during holidays and major events. I am aware that San Diego may vote eventually to ban rentals less than 30 days. 

I believe the property isn't set up well for families and is more closer to the playboy mansion than a traditional family home. Also, it appears to be listed grossly under market but it's difficult to comp. My house down the street is being listed at $550/sq ft and isn't even close to as awesome as this place. 

Talk me out of this, or into this. I can only see the upside in this, am I wrong here? 

[Andrew Johnson]

Chris Vicari A few things to consider:
1.) With a house like this, 60% occupancy might be optimistic. It looks like a "weekend house" so other than peak times you'll like get (at best) the Friday-Sunday renter.
2.) Families with small kids are going to run like crazy with the interior mini-cliffs and spa in the living room. It just looks like a hazard (speaking as a guy with a 3 year old).
3.) Having that feature in the living room is going to mean wet-people-everywhere so your furniture wear-and-tear will likely be off of the charts.
4.) How will an insurance company react to the interior spa with no fence? Will you have to pay above-market rates because of it?
5.) You're on a cul de sac, pretty much the worst place to rent out a party house! If there's a property to get sited for violating a vacation rental statute, it's yours.
6.) I think 3-5 years isn't the best timeframe to think about "speculation" after a 9-10 year run up. If you want to hold it for another 10 years, different story.
7.) Before you even think about making an offer I would advise you to visit a property management company. Believe me, they should be able to come up with weekly rental rates, occupancy rates, and total revenue.
8.) Make sure you really understand the cost structures around vacation rentals. Not just the PM fees but weekly cleaning, furniture replacement, cable/internet, etc.
9.) Speaking of #8, if you want high dollar rent rates everything from your sofas through your bed linens through your coffee maker have to be "4 Seasons" level. You not buying a sofa from Plumbers and linens from Bed Bath and Beyond...
Anyway, food for thought from a guy up here in Encinitas who lives on a cul de sac but doesn't have a party home!