Investing in Short Term Vacation Rentals STR in California

[Atanas Petrov]

Hello,

I have 2 single family houses and a condo in Los Angeles, and have been learning abut Vacation Rentals lately. I'm 2 weeks away from being ready taxes filed etc. to pull the trigger on the next investment property. I have made the decision to purchase a house for the sole purpose of Short Term Rental this time, because I will be able to generate more positive cash flow if everything is set up nicely and it goes well and I can treat it as a business. I initially considered to purchase STR in Florida, but decided to do my first one near where I live so I can learn, and have a hands on experience. I have narrowed down a few areas mainly Palm Springs, Joshua Tree, Yucca valley area, or San Jacinto peak also in that area. Another option is Big Bear, Lake Arrowhead Area, and lastly further near Yosemite and Sequoia National forest which is very seasonal market. I would appreciate any comments or advice and what you think about a specific area that would be good for buying a Vacation Rental with relatively low risk.

Thank you

[Michael Skinner]

@Atanas Petrov - depending on how hands-on you want to be, definitely a good idea to get something closer to where you reside... 

Seems like you nailed a lot of the great STR markets near LA... I can say PS and JT both have promising investment potential if you can get a property (as Jason mentioned, the landscape is pretty aggressive). These two, as well as Big Bear, are established vacation rental markets that have favorable STR regulations and offer great returns with very little risk.

Last month in Palm Springs, I had a 3/2 SFR do $13k and a 3/3 do $14k, both at nearly 50% margin. May-Aug are indeed slower but revenue still covers costs. Annualized returns usually end up around 2x overhead (mortgage, taxes, ins. and utilities).

Can't say much about the national parks. 

Budget considerations should help narrow your market selection. Wherever you end up, you're right about the cashflow: a great setup pays off (obviously this does increase your upfront costs). So depending on your constraints, it may be worth trading purchase for furnishings. In other words, if a large purchase price squeezes your design budget, it might be better to go with a cheaper house so you have the money to "do it right" (in which case maybe JT or Yucca would be worth zeroing in on).