Thoughts on Sedona, AZ area market?

[Mitch Santos]

Have recently considered purchasing a rental property in the Sedona area and wanted to know some honest opinions from others with experience in this market.  I've came across some relatively decent priced properties (compared to major city markets) but with the potential for positive cash flow from short term rentals (AirBnb, VRBO, etc).  

Any thoughts on this type of rental.  How much does exact location matter for rent-ability in this market?  In the City of Sedona vs. nearby such as VOC.  

Also, how seasonal are rentals?  I know March-May is busiest, but hoping the rest of the year wouldn't be completely dead.  

[Brian T. Grooms]

I own 5 vacation rentals in Sedona and am under contract on a 6th. It is getting much harder to find good properties to operate as vacation rentals in the area. This is because the market is hot (the whole state is) and acquisition prices have been going up. Also the vacation rental market has become more and more saturated so nightly rental prices are not going up, but staying flat at best.

With that said the right properties in Sedona can absolutely kill it with good operations in place, I am talking 12-18% NOIs. Most of the established property management companies in Sedona are not good with less than 30 day rentals even though they claim to be. They are great for 30 day + furnished rentals and also long term rentals, but they have not kept up with the times in the less than 30 day "rental" market and will not bring you the NOI that is actually possible on these.

Operations are key to driving the highest ROI on vacation rentals and it is not nearly as easy as people assume.

Busy season in Sedona is Spring and Fall. The slow season (summer) is really not that slow if you have priced your properties correctly. I use pricing algorithms so my rates are different all the time. Different days of the week, time of year, and local events affect these rates. Also the rates are affected by how far in advance a guest is booking or how last minute a booking may be. I also use differing night stay minimums depending on how far in advance a guest is booking. Further out = longer stay mins. Last minute = shorter stay mins. (Mon - Fri last minute I allow 1 night stays, weekends always 2 not matter what to avoid parties being thrown.) I have achieved 90%+ occupancy rates in Sedona in 2017.

I focus personal investments on small units, preferably 2 bedroom units. Small units are easier to keep more fully occupied than larger houses. They are also much easier to turn over and prepare for the next set of guests. Additionally, they are less maintenance intensive. I recommend investing in updating to a modern design and dont just put old second hand furniture in your properties (many will suggest this). To stay competitive you need to have quality properties and there are just lots of dated places in Sedona that people are short term renting.

Make no mistake, short term/vacation rentals are the hospitality industry and should not be treated like long term rentals. That is if your goal is to maximize ROI, then you need to treat them like operating a hospitality business. If you just want a second house and want it "rented" sometimes then you dont have to worry that much, you can certainly drive some extra revenue fairly easily, you just wont come close to maximizing the financial performance of the property.

Be weary of what local people tell you about vacation rentals, everyone thinks they know a lot but they really dont (I am not referring to Chad, but to property managers, cleaners, and other owners that have done this in the past on VRBO). The space has changed drastically over the last 2 years and for an established property manager their systems do not integrate well with the new changes in the space.

You need to understand HOAs can ban short term rentals even though AZ passed SB 1350 Jan 1 of last year (Google SB 1350). So you need to look for properties not in HOAs or in HOAs that allow/regulate short term rentals or dont mention anything about them in their CC&Rs. Note that if an HOA does not address less than 30 day "rentals" in their CC&Rs that is possible the CC&Rs go on to be amended to ban them.

People seem to either love short term rentals or absolutely despise them, so many wont be happy with you for turning your property into one. Even if you have actually improved the property and neighborhood as a result.

I am licensed agent but not longer focus on sales or leasing. I have also managed vacation rentals for other clients in Flagstaff as well as Sedona. Mostly all I do now is operate my properties and search for new good vacation rental properties in Sedona, Flagstaff, and also now parts of the Phoenix Metro area.