How to Grow a Vacation Rental Portfolio

Question

Hello! My wife and I have kicked off our dream of a vacation rental empire with one great property that is producing an excellent return. However, we are looking for advice on where to go from here. Do we buy in the same area (beach) or do we diversify and buy a property somewhere else?

Ken Boone · Answer

@John Farkas Makes a good point. If you don’t self manage the issues I brought up are irrelevant for the most part. But if you are self managing and only have 1 rental right now then yes it is more efficient to scale if you stick to that area.  You don’t have to learn a new market.  Obviously there is more security through diversification but that has to be weighed against the other factors.  If you are doing well where you are that means you probably have things figured out for that market and can replicate it pretty easy.  If you go to a new market then like I mentioned before you are starting over in that market.  It also depends how hands on you want to be. I like to be hands on which means I like to visit my properties and check on them and do upgrades repairs etc.   I only have to go to one area to visit all my cabins.  I am a firm believer in checking in on your properties from time to time.   Nobody is going to analyze them like you will.  But again this is a preference of how you like to manage.   Again there is no right or wrong here it really boils down to what you want to do.

Pablo Flores · Answer

@Alex Nicholson

Everyone here is giving solid advice. The principle of economies of scale says you will reduce costs and optimize returns if you focus in one area. Eventually you can expand, but you’re not at that point yet with 1 property. I own 5 rentals in the greater Palm Springs market and manage a few more. I’m just barely getting to the point where I’m thinking of expanding elsewhere.

Ken Boone · Answer

Man that really depends on what you want to do.  All my STRs are in the same tourist destination.  There is something to be said for spreading to different areas for diversification, however, that does increase the work effort.  Right now I deal with the same cleaners, handymen, local contractors, local utilities etc.. for all my properties.  One call to my cleaner I can address any issues at any of my STRs.  When you spread out you have to build new teams.  The more teams you have the more people you have to communicate with.  I also know my market very well.

Breaking into a new area is great for diversification, but it is like starting over as far as building a local team goes.  So I might do that one day but I'm not ready to do that yet.  But then again if your goal is to have rentals in different places so YOU have a place to visit, then by all means that is another reason to diversify.  Really it depends on what you want to do.

Joshua Strickland · Answer

I personally diversified, but that’s just because I wanted both a cabin in the mountains and a beach condo to vacation at. The good news is once you’ve built a team in one market you know what you need to do in the next. You run into the same frustrations though while building though.

I do like being able to compare the operations of my handyman and cleaning team in each market against each other. For example I took a software my team in the smokies uses and introduced it to my PCB cleaner. I’ve also took a monthly handyman inspection set up from my team in PCB and use in the Smokies.

John Underwood · Answer

From a business perspective and to quickly scale buy in same area and use same team for everything.

I know someone that owns 5 houses on same street in Branson.

Buy different places if you want places you can use for your vacation. You'll need a different team in each area.

Just depends on your needs and wants.

John Farkas · Answer

I would and did diversify, but I don't self manage. I can see the argument for building multiple STRs in the same locale and developing a team to service them.

John D. · Answer

If the numbers are mediocre and there's a threat of change in regulation, diversify.  If the numbers are crushing and there's little chance STRs will be regulated out, concentrate in one area.

Pete Patel · Answer

I would buy and scale in the same area.  Besides easier management of handyman/cleaners, etc you also get better market knowledge constantly as you will know when ALL your properties go from busy to slow etc and that will help you figure out when/if it is time to sell etc.  Also, the biggest factor here is the time you will save which can be a real headache when trying to diversify with STRs.

Alex Nicholson · Answer

@Ken Boone thanks for your response. Would you say that the efficiency of using the same team outweighs not diversifying? We are a little hesitant to have all our eggs in one basket but our top priority is scaling quickly.

Brandon States · Answer

@Alex Nicholson we diversified a bit. In the main city near us and suburb of that city.

How to Grow a Vacation Rental Portfolio

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