Purchasing a Vaca Rental BUSINESS, what do I need to know/ask?

Question

Good Morning Everyone,

I'm currently evaluating a potential purchase of a portfolio of vacation rental units all of which reside on the same property (single owner).  What are some of the things I'll need to consider when structuring the deal as I'm not just buying the real estate but, in essence, the business itself and all the comes with it.  Here are some the things of which I'm aware that I'll need to consider:

1) business property (non-real) such as lawn care equipment, furniture, appliances (large and small), dishes, linens, tools used in the care of the property; 2) transition of internet presence and accounts (website hosting, domain name, social media, 3rd party booking sites - anything else); 3) deposits already received for future bookings; 4) a listing of contractors they use who are already familiar with the property; 5) a listing of any contracts that would carry over to the new owner;6) details and copies of any existing property management software.What else?  Any general advice?

2) transition of internet presence and accounts (website hosting, domain name, social media, 3rd party booking sites - anything else); 3) deposits already received for future bookings; 4) a listing of contractors they use who are already familiar with the property; 5) a listing of any contracts that would carry over to the new owner;6) details and copies of any existing property management software.What else?  Any general advice?

3) deposits already received for future bookings; 4) a listing of contractors they use who are already familiar with the property; 5) a listing of any contracts that would carry over to the new owner;6) details and copies of any existing property management software.What else?  Any general advice?

4) a listing of contractors they use who are already familiar with the property; 5) a listing of any contracts that would carry over to the new owner;6) details and copies of any existing property management software.What else?  Any general advice?

5) a listing of any contracts that would carry over to the new owner;6) details and copies of any existing property management software.What else?  Any general advice?

6) details and copies of any existing property management software.What else?  Any general advice?

What else?  Any general advice?

Michael Greenberg · Answer

You left out FINANCIALS! :-) Does the current owner track financial data, income statements and balance sheet items? If not, what are the associated costs, e.g., cleaning, supplies, maintenance, etc...., subscriptions: cable, internet, other, insurance? Is it legal in the area, municipalities of the property? Is there an HOA/covenant and what are the terms? Why are they selling? This business should be very lucrative - you'll want to know their motivation.

Mike

Paul Sandhu · Answer

@Michael Greenberg ^^^ summed it up fairly well.  I would ad to his list:  What is the future demand for STRs going to be in that market and what is the competition going to be like?  If someone is making money on their STRs, why would they sell it?  It's like buying someone else's adult dog, a yellow used car, or marrying a thrice divorced woman; their could be some underlying problems you are not aware of.

Christine Kankowski · Answer

History of repairs, upgrades, current problems not yet addressed.

How much time does it take weekly to run this business currently.

Is there any pending or proposed change in the city, county, allowing short term rentals?

Benjamin Vail · Answer

I would be concerned about how you will transition not only the list of cleaners and contractors, but how you will then "keep the plate spinning". Do they have software and systems in place to schedule the cleaners? Do they have systems in place to do maintenance and inventory checks on the property on a regular basis? How to they process feedback from a guest, into action items that can be taken to fix the issues with the houses, and items in the houses? If you are not buying the real estate, then how will you work with the owner to do things like fix the AC when it goes out? These are all solvable questions, but are things you should keep in mind when buying a vacation rental business.

Dan O'Neill · Answer

Thank you everyone for the replies.  Yes, indeed financials, property condition play a key role.  The seller has already provided 4 years of P&Ls and a history of updates/upgrades.  Sellers are ready to retire and enjoy their golden years.  Good points on triple checking the local ordinances which I will do to dot that "i" but the local economy is highly dependent upon tourism and given its rather remote location there aren't many hotels but there are similar STR businesses in the area.  On another thread someone suggested involving my CPA on the front end to ensure that both real and non-real estate assets that are transferred are given appropriate values as this will impact depreciation expense of the real estate assets.   Keep the info coming, the Bigger Pockets never community is great!

Purchasing a Vaca Rental BUSINESS, what do I need to know/ask?

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