Vacation rentals for a first-time investor/newb?

Question

Hey all,

Was just curious if vacation rentals are generally recommended and a good idea for a newbie investor. I've just started listening to the BP podcasts and reading the beginners guide, so I have a ton to learn still. But just trying to get a handle on what type(s) of real estate I might want to invest in. At this point, duplexes/multiplexes seem appealing but I feel pretty limited and choked up as far as ['affordable'] choices are concerned here in Orange County. As I've started reading the beginners guide, I don't recall vacation rentals being something that was listed as a type of 'investment' to consider investing in. Unless I glossed over it - I'm at ch5 now though.

Anyway, one of my friends is about to close on a property in Twentynine Palms, which he says is 'exploding' as far as visitors/tourism is concerned. His intention with that property is to rent it out via Airbnb. The original plan was to buy a place in Joshua Tree and do the same, but he found that it was really competitive and hard to find a place and another issue was with city involvement/coding/ordinance over making certain improvements on property was too restrictive or something along those lines. So Twentynine Palms was the next best place.

It sounds nice up-front but I'm sure there are gotchas I'm not considering here? Or has anyone here done anything like this and is it as "straightforward" as buying some vacation rental property in a 'hot' area, renting it on Airbnb/etc, and anticipating cashflow from it pretty quickly? My friend was saying that he wanted to buy something less expensive so it's more 'affordable' per month but then said it may take some time to gain some traction on it (which I presume to mean cashflow).

Jeremy Baker · Answer

I will counter with @Mike Bolen, not that he's wrong by any means, just to give a different opinion and experience.  The idea that "investing in real estate is to have passive income" is not absolute.  For many, that might be their goal, but for others, especially who do it full time, it's always going to be a "job." Just like most other types of investments, you can be as hands on as you want with your VRs.  For us, we do all of our own bookings, but once guests are at our condos, they are then passed off and taken care of by our property management teams.  We also personally make welcome guides and a separate info website with all the information they will need for our condos and the area, including lists of things to do, places to visit and where to eat.  So rarely does a guest contact us directly during their stay.

Success with VRs are like any other investment, you need to make sure the numbers work, especially if you are using management companies to help run your rentals. As a matter of fact, I would suggest running your numbers with management fees even if you intend on managing your VRs yourself.  As Mike highlighted, some items will wear out much quicker than your average long term rental and those need to be in your numbers also.  VRs are not for everyone and it can be more like a hospitality business as Mike mentioned, however, it's something some people enjoy being a part of.

@Jeremy Lee I think vacation rentals are just fine for your first investment.  That's how my wife and I got started and it's become our favorite type of investing.  As others have mentioned before, make sure you know the local laws regarding short term rentals (and any trends regarding those laws) and do your due diligence with your numbers and you can definitely have a successful VR.

Mike Bolen · Answer

I own a legal licensed vacation rental (VR). I cannot recommend a VR though for investors. The idea of investing in real estate is to have passive income. A VR is anything but passive, actually it's a job. The yield is higher than long term rentals simply because it is far more hands on. The guests, your tenants, are only there for a few nights and always need something. Coffee maker broken, door doesn't lock, dinner recommendations its constant. The properties also get used hard and normal residential systems from microwaves to hot water heaters, flooring etc wear out much faster in a vacation rental. You're no longer in the real estate investing business you're in the hospitality business. If you have other properties, like say a apartment complex and/or commercial buildings in the same town and you have service staff on your payroll (handyman, carpenter, plumber..etc) then managing the VR is much easier without this type of staff in place your returns will get stuffed in a wood chipper! On top of all this if you don't manage them in house your reviews will not be good and your bookings will quickly decline.

Jeff B. · Answer

Bravo @Mike Bolen - - you got it - - it's a job, not an investment.

VRs are seductive in the proforma stage of analysis, but the math doesn't behave like tourists and there can be extraordinary vacancies and very hi operational costs.

People go to vacation spots for a reason;  winter sports, summer hiking & fishing.  This means most VRs will be heavily used in one season and lightly if at all in another.  Unless I could get a VR in a location that appealed to year-around tourists, I wouldn't begin to consider this business.

Blair Russell · Answer

@Jeremy Lee Go for it, it's a great first investment and it trains you to do a lot of things that come in handy, or are at least good to know, even if you later outsource. Just do your research, due diligence, and always have a sold exit plan in case things don't turn out the way you would like.

Michael Lee · Answer

Sounds like a sales pitch/consultant to me.  I think the reason you and your did so well has a bunch to do luck and doing your due diligence and the riskiness of them.

Juan F. · Answer

Jeremy,

I've got a little bit of information about the area. I sent you a message!

Vacation rentals for a first-time investor/newb?

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