Vacation rentals

[Mel Saffold]

Hey guy, I'm looking to see how everyone feels about investing in the hot vacation rental locations. I found a nice prospect in myrtle beach SC. Property costs $150,000. I see similar properties being rented at 1200-1500$ per Week. Property management in place. Hoa fees 300$ / month. Can anyone give me some insight into this kind of investing. Do/don'ts?

[Raj Vachani]

Hi Mel,

I just bought my first Vacation rental a month ago after getting to know the market in the area really well.  I spent around 10 years looking into this niche and finally the timing was right for me.  Here are my learnings.  Like anything in Real Estate Investing it is all about a numbers game.

WHAT YOUR SHOULD RESEARCH:

1) Speak with at least 3 property managers to understand the local market:  Which properties rent? What are the shoulder seasons? What are the rental rates?  Where do they recommend if you were to buy a property to hand over to them?  What amenities do most renters in the area look for?

2) Look at VRBO to do research:  Check out similar properties on VRBO to do competitive research and understand what you can charge?  I actually called around 20 VRBO rental owners and intervied them.  I learnt a tonne.

3) VR ownership can be fantastic.  On mine.  I paid $700k, with $300k down in cash.  It yields around 100k in revenue with a cap rate of 8% in the first year which will eventually become a 15% cap rate property.  Do make sure you do the numbers and compare it to other investments.  DO NOT GET EMOTIONALLY ATTACHED TO THE PROPERTY.

4) Do the numbers properly.  Make sure you look at the Interest deduction and also the 27.5 year depreciation deduction.

5) Financing:  Financing Vacation Rentals is not always the same as conventional financing.  Not all banks will lend on this.  Portfolio lending is typical.  Also look at seller financing.  

There a decen't book for beginners on this called "GetawayX - Create wealth and income with Vacation Real Estate".

It's all a number's game.  Good luck.