Projecting gross annual revenue for a vacation rental

[Villy Ellinger]

I would love to get opinions/feedback from the forum.

My take: In long-term rentals you are selling accommodations. So prior rental rates are a very valid projection of what the market can bear. In vacation rentals you are selling an "experience". So it's not just about the "horse" but also about the "jockey" and prior rental history of the particular property is not as important as the rental history and potential of similar/comparable properties that are  actually managed and marketed successfully.

What happened: I recently had a buyer client who was interested in a particular condo on the beach as an investment property. The unit is 2b/2b, sleeps 6, in a complex of 80 other units. Location is very good and the price for that unit was lower than the others. I am personally aware of similar units in that particular complex grossing $45K to $50K per year. The reported rental history for this one was around $29K per year for the past three year. The client decided that made it a "bad investment". I did some research after that and found out the following: the unit was dated (bad decor), managed and advertised by the owner on VRBO. The listing had blurry pictures, the owner had only 70% response rate and a number of low reviews stating the unit was dirty. (To which he made some rather snide responses of "it's summer and sand gets everywhere"). In my opinion the rental history in this case is irrelevant. What is relevant is the "rental potential". My client (who has never owned or managed vacation rentals) disagreed with my opinion and decided to pass on the property despite the attractive price. She had initially said she wanted to find "a deal". In my opinion this was "a deal", lol. 

What do you think? What is your take on vacation rental projections?

[Avery Carl]

Past history is most definitely not an indicator of future performance on vacation rentals. There are a lot of moving parts, many of which you just mentioned. Photos are a big piece, as well as management style. In a lot of cases, poor rental history is an indicator of poor management, not a bad property!