Serial vacation rental strategy. How does this sound?

Question

Hi!   New member here.  My wife and I are ready to go see the world a bit and I have pondered this strategy.  Would love some feedback.  What I was thinking we might do is choose an area of the country we want to spend some time in.  Go there and buy a vacation property.  Possibly one that could use some work.

Stay as long as we want and fix it up and when ready, start renting it out as a vacation property and move somewhere else and repeat.  Would have to find a property manager of some sort to manage it.

So, in 4-5 years we would build up a small portfolio of properties in places we like and would like to return to.

My current business would allow me the ability to do this, so there isn’t anything holding me back from that perspective.  Just wondering if there is some flaw in my plan I’m not considering.

Thanks!

Paul Sandhu · Answer

Corpus Christi or Port Arthur Texas.  They have refineries.  Rent your STRs to contractors with a per diem.  Charge what local motels charge.  I get $600/week for a 3 bedroom house that costs $9500 to buy as a bank foreclosure.

Michael Baum · Answer

Hey @Craig Lillard. Welcome to the forum. I love the idea, but I want to sprinkle with some realism.

Can you afford to carry the various mortgages on each place? How about a portion? Once you head on to your next place, you get a PM which will eat up a pretty big portion of your gross. It will be dependent on location.

I think this is very cool and ambitious, but getting a PM to manage everything will pretty much erase any profits. As long as you know you will be in the hole on each property and accept that you have the rentals as places you can visit and accept the costs, then you will be OK.

I assume by your language that you are thinking of doing this all over the world. That changes things a bunch. Purchasing property overseas can be a chore in the best of times and impossible when things are not. I would stick to the USA for the first rentals.

I don't want to be as fatalistic as @Ken Latchers, but he does have a point. Personally I think things will go back to normal in the USA at least. Americans are not sheep. At least most are not. But you have to be prepared that things will be tough all over and that will impact your plan.

Paul Cox · Answer

@Craig Lillard,

The only flaw I see is that you haven't already started :)  Definitely would focus on true vacation destinations, especially for the next couple of years as the whole Covid-19 fallout evolves. Some of the thinking I've heard about is that smaller places may be better than bigger places for the next couple of years as people may be weary of large gatherings all in one cabin or beach house. This virus may alter the way we think of gathering for the foreseeable future. Anyway, I'm a newbie in this genre, so I'm sure the more experienced gurus will have better advice than me...Good luck and happy travels. Be well and stay safe

Paul

Jon Crosby · Answer

@Craig Lillard Sounds like a wonderful plan, a similar plan that many of us in this industry have likely thought about from time to time and/or are currently working on executing.  Obviously the elephant in the room is COVID, but let's assume it's not the end of the world (or at least the end of the STR world as we know it).  It might actually be a great time to find an area you like and a fixer-upper that you can ride out this storm while you rehab it.  The 3 things I always tell new STR owners that would still apply here are:

• Make sure it pens out as a long-term rental as well in case regulations or market shifts

• Keep 6-12 months reserves on-hand for black swan events (we are in one now obviously)

• Don't overleverage yourself (that really goes for any investment).

Best of luck to you, I hope you can make your STR dream a reality!

Stay safe and healthy!

Michael Greenberg · Answer

Hello Craig,

Having entered the STR market in 2014, I never thought a Pandemic would wreak such havoc.  The travel industry is change as @Ken Latchers has eluded to.  If I had to do it all over again I would consider the following:

Top 10 Lessons Learned: 1)Location is still everything.  2)Vacation Locations are more susceptible to significant upswings and downturns.  3)Transportation methods are an important consideration 4)No matter what, DO NOT trust ANY of the "current" OTA's (Airbnb, VRBO, etc), they are NOT looking out for your best interests 5)Whether or not you use a management company, prepare to spend more time dealing with them than you initially anticipated, so you might as well self-manage, and it is "doable". 6)View the properties as inventory, not "homes" and be prepared to pivot quickly. 7)Define "guests" for yourself. I define them as people I would welcome into my own home; people staying in my STR's are travelers - this helps me keep things in perspective 8)Travelers will treat your STR's like any other hotel and will ignore many of your rules 9)Treat it like a business, not a hobby 10)Your cleaners are your lifeline, find ones you can trust, pay them well, and they will help you enough to replace a management company.

It has been good, lucrative and outperformed any other investment.  Best of luck!

Mike

John Underwood · Answer

I like the idea.

A PM can eat up 30% of your gross income.

I would consider self managing. Not hard to do with the tools that vrbo and airbnb provide. Get a great housecleaning to be your eyes and ears and you'll be on your way.

Craig Lillard · Answer

Thanks everyone for the responses!  Let me post a general thanks here and then will comment directly as I am able.  I really appreciate it all the feedback.  I am at the very beginning of this and wouldn't be pulling any triggers for 1 to 2 years anyway, so I don't see any harm in starting to consider the concept COVID or no COVID.  And as I mentioned, I would live in the first one and not move out until I am sure I can move.  The other alternative would be to do long-term rentals instead and not move out of each place ONLY once I have a long-term tenant moved in.

I have been an internet entrenrepeneur for 20 yrs or so now, and am looking for diversity.  However, I have been through my own business ups and downs and not ignorant to losing big. This is one of the reasons I am looking to real estate for some diversity.

Locally, I have been watching rental properties in my area not moving for the last 6-8 months, so this is definitely on my radar.

So, I am at the very beginning of this journey, and just wondering if, apart from COVID, this is a crazy idea or not.  Sounds like it's definitely something to look into further.

Thanks again!

:)

- Craig

Craig Lillard · Answer

@Austin Brewer

Yeah that makes sense Austin.  Good idea.  Thanks for posting.

Craig Lillard · Answer

@Hailey Lanier. Sounds good Hailey!   PM me anytime.

Hailey Lanier · Answer

@Craig Lillard

I’m actually looking to do something similar, would love to connect and chat when you have a chance!!

Serial vacation rental strategy. How does this sound?

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