Vacation Rental Properties and OCCUPANCY RATES ???

Question

Hi BP,

I am considering a investment in a vacation rental in Oakhurst, CA (Near Yosemite & Bass Lake). My biggest hang up at the moment is accurately forecasting occupancy rates during Peak and Off-Peak seasons.

Does anyone have this kind of investment? Location? and occupancy rates?

Any help greatly appreciated!

Mel Selvidge · Answer

Hi, @Joseph C.

I have a VR in Yosemite West, and my property manager manages properties in Oakhurst as well.  If you look at their booking calendars, the occupancy rates you see are going to be pretty accurate for rented guest use.  (I recommend them highly as managers.)

They must make money or they wouldn't be doing it, but I haven't been able to make the numbers work for me.  Maybe if I bought in 2009?  The expenses (utilities, amenities, cleaning, maintenance, management, snow removal, permits, taxes) on a VR in the mountains is pretty brutal.  If you're competing with places in the park, especially in the off-season when there's affordable availability near the valley, going high-end with all the amenities will help with occupancy, but the cost of luxury can negate the benefits.  Basically, you have to offer a better experience than staying in the park at prices that jive with the cost of off-season motel rooms which are plentiful in Oakhurst.

It seems to me that at the outside-the-gate vrbo supply keeps growing and growing too.  More people are doing it in the park too, but it's more supply-constrained there.

Colleen F. · Answer

Compare as closely a possible on amenities and size against the other units.  The vacation area clearly influences the demand.  In my experience, in our area it is at least 3 bedrooms and sleep 8 but that really differs by area.  A beach area, beach front or beach view is higher occupancy then otherwise so if there is a driver in your area like proximity that makes a property more desirable make sure your comparison is similar.    If you look at homeaway and vrbo you will get an idea but you  need to sort those that are second homes against truly rental.   Published rates for all seasons is one indicator of a rental. Also continuous block out of one season could be another indicator. Talk to a rental office in the area that manages these type of properties. If you are buying through a real estate agent talk to the rental office of their agency to see when high and low season are.  find out if there are special events that guarantee occupancy, music festivals, competitions etc. Always assume your property will be average or less not the highest prices you see.  Look at the ads on craigslist.  Check if there is an oversupply (bigger issue for condos).  Good luck.

Catherine Wong · Answer

@Joseph C. did you ended up with a property at that area?  if so how is it going?  4 years ago the prices were much lower

Catherine Wong · Answer

@Mel Selvidge, Do you mind telling me when you purchase you Yosemite west property and how much was the price?  How is business going for you with that rental?

Margaret B. · Answer

@Joseph C LOL, I knew you were going to ask me that!  I don't know where you are in the REI game, but I am a newbie start-up business owner.  I've always been an employee or an independent contractor, not a future employer, and my learning curve has been on maximum speed.  I kept hearing this CPA's name at the REIA meetings, because his specialty is real estate investment accounting, and he invests also.  He emphasized "we want to maximize allowable deductions for the legal entity and you, pay the fair share of taxes, but not overpay as a legal entity or an individual."  Now, I know I will be set up as a LLC with a home office to begin with to grow.

We were discussing disallowed passive losses, carryovers, etc.  CPA mentioned it is a loophole that the IRS closed to individuals with secondary homes/small business owners;  some of his newer clients acted without asking the tax consequences and learned this the hard way.  His exact words were "lease the beach property to the management company; management company's responsibilities are to rent it (or not) to monthly snowbirds and weekly/weekend/daily vacationers and to pay the higher percentage corporate "hotel" rates to the IRS."  Paying the highest corporate percentage due to "ignorance/stupidity" versus the lowest possible can kill a startup like mine.

Just before the busy summer rental period, now is not the time to buy a beach house anyway, so I dropped the subject with the CPA.  I'd be curious what your/others CPAs advise on this subject.

Joseph C. · Answer

@Margaret B.

What is the implication of being considered a hotel?

Margaret B. · Answer

@Joseph. C. I was interested in buying a vacation beach rental, such as Destin, FL, and mentioned it to my CPA at tax preparation time.  He advised against it; per IRS' new rules, if you rent out a place one night here, a week there, etc. the IRS considers you a hotel!  He advised if I was gung-ho on this idea, make sure the management company assumes that bullet ... Check with your CPA a before jumping!

Joseph C. · Answer

Thank you all for your input.

Jonathan Schwartz · Answer

Hi Joseph, to the best of my knowledge there is no central source for this info, since most vacation rentals are owner managed.

When we were researching occupancy rates during peak season on Cape Cod where we own a rental, I looked at HomeAway and VRBO and simply looked at the calendars of similar homes in my target area.  It was not a perfect science as you don't know if all dates shown as unavailable are rented or being used personally. It gave me a good starting point and I was confident I could rent 100% mid-June thru Labor Day with almost all weekends rented May thru mid-October. When I ran the numbers that was enough to cover all costs with a little leftover.

Good luck!

Vacation Rental Properties and OCCUPANCY RATES ???

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