Top 8 Tips for Short Term Rental Investment on the Oregon Coast

[AJ Wong]

- Permitting. Permitting. Permitting. 

One of the reasons I moved to the Oregon Coast from southern California in 2018 was due to the notable difference in the barrier to investment entry and the non existence of short term or vacation rental regulation. Fast forward five years and there are very limited areas and properties that are eligible for outright vacation rental usage or occupancies of less than 30 days. On any given day, within a given budget or wish list, there are generally a handful of eligible and strong potential candidates on the ENTIRE OREGON COAST. As a consequence of my four years of working with Vacasa and their considerable network of buyers and sellers of permitted vacation rentals, my niche requires constant familiarity with local ordinances, regional requirements and processes and procedures for securing permits as well as the demand to cover an expansive geographical area. If you want to secure eligible vacation rental we can help you find it, but it often is not in the areas you might initially look. A great recent example of a little pleasant surprise for investors seeking a vacation rental in or around Bandon is that assuming you can locate a property within the permissible zone, prepare to invest in a commercial sprinkler system prior to a vacation rental permit. Not to worry,  we have a great sprinkler installation company for reference.

My suggestion is to make friends with the person at planning for both the city and county. Most of the information will be available (although not always clear) on the city/county websites, but regardless of the thoroughness of your realtor/broker/friend get in contact with the source via email or phone. Also on occasion we will write into a purchase offer a contingency for additional verification of vacation rental usage during the standard inspection period or beyond. There is no such thing as too much due diligence. So do it. You do not want to be the buyer left with a property you can't use as intended and I don't want to be the broker that sold it to you. 

- Location X 3

Not sure who said it but location does matter. If the Oregon Coast is on your radar, there aren't many alternatives. It's not for everyone, but everyone that visits leaves with more than they arrived with. As it relates to vacation rentals there is very strong demand. I'd estimate 70% of the rental market is from Lincoln City to Astoria with the vast majority in or around LC, Rockaway Beach and every where in between. The reality is none of these areas are actively expanding permitting but almost everywhere on the coast has demonstrated demand. You wouldn't believe me if I shared what some of the stronger short term rentals gross incomes in areas that would be hard to find on a map. 

But even location within a location matters. Most Airbnb'ers don't want to drive down a long lonely road, unless it's worth it. If it is off the beaten path there needs to be incentive, and good internet. Be on the look out for the quality of neighbors or the over-saturation of quality rentals for that matter. Often because there are so few areas that vacation rentals are welcomed there are higher concentrations of short term rentals in those areas. Also what do people want when they visit? Food. Nature. Activities. Closeness to whatever action that areas offers. 

 - Upfront costs

Hidden costs ALWAYS exist. We discussed permitting hurdles, which means there are periods that the anticipated income might not be received. Also the home is going to be lived in, full time. Things need to work and the space needs to be ready for living. Fully furnished, fully decorated and fully functional. The little touches are what guests remember (and write about) it's also the 2023 aesthetic that differentiates on the Oregon Coast. If the place looks, feels and smells good, you have a good chance of it being in demand. With that said getting it to that condition will take time, effort and investment. Factor in a few flights and weekends getting the property in the condition you would want it in for $200-400/night plus cleaning fees..

One tip is look for a property that is offered fully furnished, or get really good at thrifting. I've managed to furnish many many rentals by spending very very little on quality furnishings. Another helpful bit could be a seller's concession. We helped facilitate a recent Triplex with a full 3% credit to cover closing costs. Over $15k stayed in my clients pockets for appliances and other substantial upfront investment they had to consider. 

- Style, Design & Photos

Above I touched on the fact that the Oregon Coast has a shortage of 2023 version rentals. If you're from out of state, California in particular, properties are often 'cute,' or made to appear that way. There is no shortage of stories of successful yurts, ADU's, grain bins, tree houses and van's that are quite profitable as short term rentals. And in fact my fiancé and I turned a shed into a $4k per month grossing rental, and sold it for nearly $200k..

The one thing those accommodations have in common is style, design and photos. The places generally look cool or at least clean and existing enough to stay in and share. After all your AirBnB is another person/couple/family vacation. We're all quite used to getting less than we pay for, but how often are you pleasantly surprised or at least feel like your investment was worth it? The same goes for your investment or the potential of your a vacation rental. There should be show...BNB Cribs or Pimp my BNB...you can work magic with paint, furnishings, plants and rugs but it still needs to be quality and maintained. Vacation rentals take a beating, quality furniture will hold up but as with your space this is not a one time investment. There will be reinvestment costs, such as the expenses of visiting to update the furnishings and linens for next season. If the first round was done well, these should be expenses covered by the property. 

- Size matters

Personally I have had the most success with smaller footprint dwellings that offered larger amenities. I suspect the reason for this is that the majority of travelers are couples. There is a smaller demand for a 3-4-5 bedroom home and unless the amenities justify the costs. I've seen many oceanfront estates generate well north of $200k annually in gross revenue but the barrier to entry is higher as are the management requirements. It's difficult to turn over a 2-3-4k square foot home in time for the next check in, not nearly as challenging is a 1/1 cottage or a  2/2 condo. 

I suppose the best way to think of it is that there is a larger tenant pool for a $2500/mo rental than a $6500/mo home. Now that's not to say there aren't areas of under serviced full family rentals. Near Bandon Dunes or Cannon Beach for example, a full family sized home (done well) will be just as popular as a smaller foot print due to demographics and composition of tourists. The main point is that many of the most profitable BnB's are extensions of the primary property. An ADU, a room with a separate entrance, a basement..often the real return is hidden beyond the conventional assessment or projection.

- Not all deals are created equal

Investing is a fun game. Much like sports it reveals who's prepared and who has work to do. I like to think I've seen it all, but we're all rookies when it comes to returns. I learn everyday, or at least try to..shout out to Bigger Pockets. One thing I'm reasonable at is identifying creative ways to make a deal work, or on what terms it could be most advantageous as an investment. So for example: seller concessions, owner carry's, extended closings, investor specific lending, local lending relationships, debt structuring and creative marketing. All of these are variable analytics that can affect the proposed value of a transaction. 

In the real world it might look like the $15k concession on a 10% down investor loan that requires a NET of $50k our of pocket on a $500k Triplex. OR in my first personal run, borrowing $60k from a friend at 10% interest only but instead of making monthly payments agreeing on a two year ballon for $72,500. Or 25% down with a local credit union on a six plex that the owners wanted cash only due to the condition. Or a seller carry, where everyone actually wins. All of these are real life examples of outside the box thinking that produced profitable results. In this game you either need to out train, out work or out think everyone else, I suggest a combination of all three. My first focus would be on lending relationships and qualifications. It's nice to browse Zillow, it's more lucrative to be able to close when opportunity knocks. A good lender is worth their weight and they (like good brokers and investors) are few and far between. We often suggest a 10% down no PMI investor specific program to our clientele as a baseline, it's an exceptional program that can make or break a deal! Message me for deets.

- Realistic expectations

I suspect this will be a popular article because there are a lot of people looking to be or already involved in vacation rental ownership on the Oregon Coast and beyond. In fact the statistics support an explosion in BNB inventory, ownership and conversion to rental usages. In their defense that is why many municipalities have taken steps to limit their volume as often the argument is that it contributes to the housing shortage. Politics aside, there are more and more people looking for a quality return, utilizing a short term rental. On the Oregon Coast with persistence and patience there is still an opportunity to secure a permitted and profitable property. However in most coastal areas (any coast for that matter) the barrier to entry is either closed or also increasing. When I first started BNB'ing by rental in Venice Beach there were no rules, now I don't believe you can get a new permit if you wanted one.

Also just because you own a short term rental doesn't mean you won't have typical land lord problems. In fact there's a good chance that you will have more! Management is a critical component to success. On the Oregon Coast this is generally a challenge. Especially if you're property IS off the beaten path. Think of the Coast like an island. Good people are hard to find. It's not impossible. Case in point :) BUT if you intend to self manage (the most cost effective solution) you'll need to make friends with the locals. If you think you are going to be successful as the guy or gal from California and just own a home in paradise without paying with any sweat equity, you should be writing this article. Property ownership takes sacrifice and effort. At least positive producing short term rentals do. There is no magic button, however if you'v even particular and prudent with the aforementioned points getting the assembly line to produce consistently is a more strait and narrow path. A dependable and caring cleaning crew and possibly management team is essential. Get on Facebook, join the local groups, put an ad on craigslist and pay people what they are worth. Build your team. Handyman and plumber included. We have a few excellent references for property management when the time comes. 

- Art & Science

Despite all of your research and AirDNA tools, there is a balance between planning, execution and monetization of vacation rentals and short term rentals. As hard as they are to find and procure on hard numbers, there is an art to making them attractive, consistent, marketing and profiting. The featured authors and columnists didn't invest in a property that was out of the ordinary (although their timing or foresight might have been earlier) generally the exceptional component to their story is just that..their story. Maybe they have a following because their container home went viral or they have all five star ratings because guests get cookies from the local bakery at check in. Whatever it is, there has to be something, some differentiator about the property itself or the experience with the property that is notable, memorable or worth investing in. 

Not just from the perspective of the owner and host but also of the tenant. What would you pay to stay there and why? Where can you as as investor create hidden value? What makes it valuable in the first place? The answers can be simple. I can walk to the beach for under $250k. My dog has a fenced yard. $35k for a custom ocean view casita in Mexico instead of $3k per month on rent in San Diego for one year. Ok it might take a little rocket science but the guiding principle is to create something for yourself. If you create the absolute 'best' sanctuary or home on the Oregon Coast (regardless of the type of domicile) it will be in demand because: A. They're hard to find. B. hardly anyone else puts their full love into it. All too often we get attached to what other people want, but in this case a little selfishness can go a long way and by bringing OUR vision to life we offer the best experience to others. 

- PS

Short term rentals are potentially a great addition to a property portfolio or a focused strategy to investment success. However there are other dynamics and alternatives that are increasingly underutilized that can offer alternative paths to investment or profitability. Since there are so few STR permits forthcoming, I believe the value of securing a permit and the associated benefits should increase. Additionally since there will likely be lower available BNB inventory over time, there is an expanding demand for furnished medium term rentals. Those rentals that are greater than 30 days available for 1-3-6 months. For example the 'tiny home' shed I created in Coos Bay was rented by a traveling nurse for $4k per month for 3 months in December 2020. More on this next time..

[Michael Baum]

Great post @AJ Wong. This should be a blog post. :)