Can I get a second opinion on this VR analysis?

Question

I'm an experienced investor but new to VR. I'm hoping to get some input from more experienced VR investors. I put together a quick analysis spreadsheet based on something I found from Jon Crosby and ran a few properties through it from Provincetown, MA. So far I haven't been able to find a single cash flowing property based on reported revenue from past years. Am I missing something, is Provincetown not the cash flowing town I've been lead to believe or are VR investors not making money? Google Sheet - 36 Shank Painter Rd

Mike M. · Answer

@Anand S. My goal was to use the purchase price and the VR revenue for the previous year reported by the seller to back into what the cash flow would be. My assumption was that the gross revenue they reported would include the taxes that they needed to pass-through to the town. Is that not a safe assumption?

Thank you all for reaffirming that this is a bad deal. @Joseph Ammar @John D.

And I appreciate some of the tips around framing what a makes a good deal at first glance @Jake Miller @Jon Crosby @Eric A

Anand S. · Answer

If those are the numbers to expect then I'd say it's not a cash flowing town. You may want to check a different property type and location to see if you get higher nightly rates and occupancy. Here in FLL the bigger homes do better, as they cater to larger groups.

Also, I see you break out the occupancy tax as a line item. Shouldn't this be a pass-through expense (although it wouldn't make the overall better)?

John D. · Answer

Based on the data in the G-Sheet, that looks atrocious numbers wise.  With that said, I don't know the market at all.  Instead of picking guessing an average nightly rent and vacancy rate, I would get comps from similar properties.  Ask local realtors, owners, and property managers for comps and how much similar properties gross per year.  And buy the full set of Airdna data for the area.

Jon Crosby · Answer

Hey @Mike Mepham,  Looks like it cash flows but only if you are putting 100% down unfortunately and if so not a great cash on cash return. :(  Maybe those that you hear are cash flowing so well bought low and are reaping the rewards now.

One of the problems with single season rentals is there is simply not enough available days to get the returns unless the ADRs are really high.  That's why I usually try and focus on dual season regions where it's either sunny all year long OR lake areas where there is skiing in the winter and summer/water activities in the summer.

That being said, if they are successful at owning a VR then they likely are not selling it.  Like any business if you are not good at it or do not provide a valuable experience for your guests, you are going to have poor returns and probably try and sell it.  This would present a good value add opportunity for you if you can provide the right experience to an area that has great occupancy rates.

For Provincetown I see about $29k in gross revenue for the top 25% of active Airbnb rentals (Everbooked data).  Even at that amount you are going to be paying too much for the property and the HOA and mortgage are going to eat your cash flow.  We are at a top of a real estate market cycle so home prices are killing a lot of the returns in many places...in most places!  :)

It all depends on what you want though, if it's an area you want to visit with your family then you have to take that into consideration as a type of 'return' on investment also.

Sorry to not have better news, but stick with the numbers, be patient and have cash ready to deploy and strike when the iron is hot, so to speak.  :)

Cheers!

Jake Miller · Answer

I wouldn’t purchase any vacation rental if it only earned 150.00 per night at a 325k purchase price, you should be earning closer to $300+ per night at that price.

Every place isn’t ideal for vacation rentals, typically I only buy vacation rentals that break even at a 30% occupancy rate. I suggest taking a look at airdna.co and seeing what numbers you get from that area, it’s possible you’re undervaluing the region.

Joseph Ammar · Answer

No way for me to know the actual expenses without diving in deep. Request property expenses from the seller for past 12 months to get a true analysis. You're expenses should not be a percentage since it is a STR and is based on occupancy. Also, there are fees which im not sure you assumed - airbnb and homeaway have fees per booking -2-3%. Cleaning fee you can charge the renter along with service and taxes.

Lmk if it helps - regardless your return seems to be negative so would not assume my changes would make it any better.

Mike M. · Answer

I backed into 153 nights based on the AirBnB rate for the property and the revenue they reported last year.

Sid Payne · Answer

Are you only expecting 153 nights of occupancy? That is less than 50%. Are you trying to be overly conservative or do you think that is all you're going to get? I try to have 50% be my break even and then I typically achieve 75% to 95% occupancy. However, my market might be different (Central Florida).