Luxury or cheaper rental to start?

Short-Term & Vacation Rental Discussions
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Luxury or cheaper rental to start?

Account Closed
Member since 2021 · 10 posts · 6 votes

Hi All,

My husband and I are looking to invest in a short-term vacation rental. We are mulling over 2 options and would love some guidance.

1. Luxury, brand-new home at $1.1 million in a resort community. Right next to a lake, river and 15 min to the ski slopes. I know multiple people renting their homes here and the profit margin is great. Moreover, it books up most of the year with a lull in March and Oct-mid Nov. However, the on-site management company takes 41% of the booking. If we choose another company or self-manage, our guests will not have access to their free shuttles, 3 pools, gym and rec center. The pool ban would hurt summer aka peak bookings, especially those with families. The shuttle ban would hurt adults who like to enjoy the on-site wineries without worrying about driving.

2. Nice, but not luxurious house near the beach for $700k. This would mainly be summer and holiday rentals. Local management companies quote 10-20% but we figure out the cleaner or handyman depending on the plan. The 20% plan includes hiring the cleaners, not handyman.

We will most likely end up with very similar income from both properties at the best management plans, but my husband prefers 1 because we get to own an incredible home in a very sought-after neighborhood, but I prefer 2 so we can have a lower down payment and mortgage payments freeing up cash for another investment. #1 is close to us allowing us to enjoy the property while #2 is 3 hours away. 

Any guidance on how best to analyze and view these 2 options?

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
5y

All 3 of these are in Chelan county of course.  There is currently a moratorium on any new STRs in the county, maybe getting worse later FYI.

https://www.co.chelan.wa.us/co...

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  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    5y

    Hi @Account Closed, welcome to the forum and the STR fray! This is an interesting choice, but an easy one for me.

    There is no way I would be beholden to a resort home with a 41% management fee and all the rules surrounding it. That is a lot of cheddar for something so controlled. Have you done the numbers on return? 41% off the top is a lot.

    I would go with the second option myself, but even that seems iffy to me. Can you be more specific on the area?

    And I would also do self management on this. It isn't that hard to do once you have your systems in place. I manage ours from 360 miles away with zero problems.

    So, give us more details on the area please, we can then help analyze each place.

    0Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    5y

    You are paying too much for too little. I know this guy in a refinery town that buys 3 bedroom houses for $9500 and rents them out for $600 a week.  His tenants are ruffians.  He's a redneck, but he's pretty smart.

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    Don't be near the beach or near the lake. Be on the beach or on the lake. Then you don't need to worry about what some resort has.

    Self manage and pocket the high PM fees, it's not that hard to do even from across country.

    0Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Michael Baum So glad to see that you are from WA too! So #1 is Suncadia and #2 is Long Beach, WA. 

    #1 - 4 bed/3 bath with a hot tub, fire pit, high end finishes. We vacation at Sundcadia twice/yr and this house would rent for $800/night during summers and holidays and $500-$600/night during moderate season and $400/night during the lull (if it even books up). Due to COVID, most homes have been booked up at 90%+ occupancy in 2020 with tech employees working/schooling from home at these units. We also pay HOA (200/mo) and hot tub maintenance (80/mo). Higher utilities and property taxes.

    #2 - 3 bed/2 bath, no amenities. Will most likely rent for $500-600/night during summers and holidays and $200/night off-peak. No HOA or other fees for this home. Lower property taxes. lower mortgage, lower cleaning fees.

    After crunching numbers, we are looking at similar profits with #2 being slightly higher.

    1Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Paul Sandhu I agree with you, but we are concerned about the drawbacks of buying cheap and renting to a rough crowd. Property damage? Noise complaints? 

    0Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @John Underwood I would love to buy in Florida or the Carolinas, but feeling quite nervous about long distance management. With COVID, I can't imagine flying there if needed or emergency service calls. I need to figure out how to build relationships with cleaners and handymen.

    0Reply
  • David Bond
    Member since 2020 · 6 posts · 4 votes
    5y

    I would vote for option 2. We have 3 STR, and all are on the water. Our next purchase will be across the street from the lake, as it has unique features that will drive bookings.

    Our friends bought their STR in a resort community much like your Option 1. They face challenges that we do not, and worse, have no control over new declarations and requirements by the resort board.

    I agree, on the water would be best, and a property that you have control over. 

    0Reply
  • David Bond
    Member since 2020 · 6 posts · 4 votes
    5y

    I would vote for option 2. We have 3 STR, and all are on the water. Our next purchase will be across the street from the lake, as it has unique features that will drive bookings.

    Our friends bought their STR in a resort community much like your Option 1. They face challenges that we do not, and worse, have no control over new declarations and requirements by the resort board.

    I agree, on the water would be best, and a property that you have control over. 

    0Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    5y

    Do a starter STR in your own town and learn the ropes. I've got 23 in my town. 83 beds total. Also develop your 3M talent.

    Mechanic

    Magician

    Mindreader

    1Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Paul Sandhu my town and many surrounding towns have banned STR rentals. Minimum 6 month rental only. Also, I live in VHCOL town in the Seattle area and STR would not be a lucrative option here. Long term rentals were somewhat lucrative until COVID hit and rents dropped 20%. Renters' rights are strong and my friend has not been paid in nearly a year and no way to evict just yet.

    1Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    5y

    Do some STRs in Wynnewood Oklahoma. The refinery in my town has a sister refinery in Wynnewood. That refinery has started a 2-3 year project to use renewables to produce bio-diesel. They are converting their hydrocracker to use soy based feedstock. It's a $110 million project. I generally get 1/10 of 1% of the cost of any project in STR rent.

    0Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    5y

     Start lifting weights and learn Krav Maga or boxing.  That's what I did.  Gained 2" on my arms and 8" on my chest.  The rough crowd isn't so rough anymore.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    5y

    Hey @Account Closed! Well very cool. I am very familiar with Long Beach. My mother in law lived there until she died last year and my wife lived there as well. Suncadia is a place I have been to before, never stayed but looked at properties.

    On the Suncadia property, that $800 seems optimistic. Places that size there seem to be in the $500 range. $700 a night places are 5+ bedrooms, not all but most. That is what I can see. Did you get those figures from your agent or did you run those yourself. I used VRBO to pull numbers. Some have access to the Swim center and some don't. Who is the listed property manager?

    On the Long Beach place, is it west of hwy 103? Is it direct ocean front with view? I am thinking the estimates for summer nightly is also optimistic. I also used VRBO and high summer on a similar sized ocean front home with great view was $389 a night.

    I am still leaning to the Long Beach place IMHO. Make sure you run numbers. Search VRBO/AirBNB for places that would be similar to yours. Check their calendars for occupancy. I really think 700k is going to be too much to be profitable.

    One other thing to look at is the guests. Long Beach is a more mainstream type of locale. It is much like our north Idaho home. You will get regular family folks. People looking to get away from their jobs just like most of us. These folks are our bread and butter.

    Suncadia is more upscale. The guests will be more upscale as well. That, IMHO, is not always a good thing. They are much pickier than more mainstream guests. Every little thing has to be perfect or you will lose a star. I have no real evidence of that, just my gut.

    Our place caters to families and is at a reasonable price for the size and lakefront. We make the place awesome so everyone loves it. 5 star reviews from everyone over the last 4 years of renting. People are very appreciative of our place and treat it well.

    I think if you do the same, you will have a great rental. Just make sure the numbers truly work.

    0Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Michael Baum The Suncadia numbers are from other owners as well my own previous bookings. We spend 4 weeks/yr at an identical unit and pay $800/night split among 8 people. I wouldn't use VRBO since they don't list on it or Airbnb. They have their own portal. It's managed by Hyatt/Suncadia Property Management hence the high fees. That said, I agree with you that we may too optimistic.

    The long beach home is oceanfront with a view. I got the numbers from an agent and it looks like there is some exaggeration. I plan to get the last 5 years rental income history from the owners.

    Thanks for your tip about the renters. I definitely want to avoid either extreme and look for a family friendly places.

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    5y

    @Account Closed there are plenty of Suncadia listings on VRBO so it is a resource. Hyatt might not list on there but other owners do and people will look there. AirBNB also has listings. I will say that as a guest, you can get a similar place through either VRBO/AirBNB for 1/2 the booking rate for Hyatt bookings.

    Plus, All Property Management runs a bunch of those and they must have some kind of contract with Hyatt for the use of the swim facilities. So that is a rub as well.

    That, to me, makes the Long Beach place a better bet.

    Actually we might take over my mother-in-laws home. My wife's brother lives there now as he took care of her and the house is his, but he is having a tough time taking care of it as it is quite dilapidated. It is not oceanfront, but about a 10 minute walk. I expect if we do a full remodel on it, it would go for about $125 a night. It is a 3/1.5 about 1200sqft. Not a luxury place at all.

    Keep us posted on your decision put up some pics once you have either place.

    0Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Michael Baum thanks for all of that info. Lots to consider for sure. We are looking at a couple options at Lake Chelan, Leavenworth and Wenatchee this week, so we'll have more options.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    5y

    You are welcome @Account Closed. All those places can make for good vacation rentals, just remember the fire danger over there. It can be brutal when there is a fire local, but because of the topography, it is a natural wind tunnel for smoke coming from Canadian fires as well.

    I would love to have a place on Lake Chelan. It is out of my budget for the next rental, but it should be within yours. Pretty much a 2 season rental. Summer with bumper time on either end. Leavenworth is also pretty good. It seems to have decent winter traffic as well. Skiing is about 45 minutes away.

    0Reply
  • Nancy Bachety
    Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes
    5y

    Your decision includes more than just the financials. It includes an emotional appeal (we could own an exclusive place) and there’s no price value for that. If you’d use it only sometimes, I can tell you those times will be filled with a honey-do list of things to do.  If you pay 41% and all expenses, you’re mostly just getting the right to say you own a place there. 
    Use this awesome spreadsheet I snagged somewhere. The rest is up to you. Sounds like a small difference between the two but a greater expense with option 1. 
    https://docs.google.com/spread...

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    All 3 of these are in Chelan county of course.  There is currently a moratorium on any new STRs in the county, maybe getting worse later FYI.

    https://www.co.chelan.wa.us/co...

    3Reply
  • Nancy Bachety
    Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes
    5y

    What^ just said is reason to start with regulation research.

    1Reply
  • Aigo Pyles
    Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes
    5y

    I'd go for option 2. 

    0Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Steve Vaughan agreed! But all 3 properties are existing STR's and our agent said that we can continue using them as STR's. I will need to review the regulations more before we make any decisions, but thanks for the great info.

    0Reply
  • Account Closed
    OP
    Member since 2021 · 10 posts · 6 votes
    5y

    @Nancy Bachety yes! Researching local laws are my main homework, but the 3 properties in Chelan are all existing STRs and our agent said we could continue using them as such. We'll need to do our own independent research before making any big decisions.

    0Reply
  • Scott S.
    Tacoma, WA · Member since 2014 · 77 posts · 92 votes
    5y

    My vote is #1 for many reasons.  I'm guessing you are looking at the Roslyn Ridge community?  It's a much more desirable location year round and big $$$ has been flowing east of the mountains for quite some time now.  The property is also brand new so maintenance costs will be much lower.  You won't have to worry about short-term rental laws in that area.  It was designed to be a vacation destination.  You'll also likely see higher appreciation.  Long Beach, Ocean Shores, Westport area just hasn't seen the same RE gains and I don't expect things to change.  Suncadia + many parts of Eastern WA (Leavenworth, Lk Wenatchee/Plain, Chelan, Wenatchee are becoming even more popular for Westside folks to travel to get their Vitamin D fill.  It's a totally different climate yet it feels like you are in a different state.  While I love and enjoy the WA beaches it's mostly just during the summer months (unless there is a clam dig during winter).  Cle Elum area will always be an attractive destination for winter AND summer months. Skiing, snowmobiling, mountain biking, motorcycle riding, fishing, hiking, swimming, golfing, etc.  

    40% of booking fees may seem like a lot (I see similar rates in Hawaii) but as long as the numbers still work, why not?  Sounds like a pretty good mostly hands-off investment with the on-site management.  Long Beach will likely be more challenging finding and keeping long-term management, cleaners, etc.

    I love Chelan and visit every summer but the bulk of your reservations are going to be between May - labor day.  And the most desirable parts of Chelan on the water are big $$$$.  For year round bookings I'd take a serious look into Leavenworth.  Obviously, you'll need to understand the short-term laws and boundaries.  There are a couple small communities just north of Leavenworth in Plain area that allow short-term vacation rentals (Chiwawa River Pines, Ponderosa Pines) but AirBnB guests typically won't have access to the amenities like the pool, etc.

    Can you be more specific on the gross and net numbers, ROI of the Suncadia location?
      

    1Reply
  • Christina Hennessy
    Real Estate Agent · Albany NY · Member since 2018 · 50 posts · 25 votes
    5y

    I own an STR in Key West. Most of the rentals are 25 years old and up so you don't get younger party people so to speak. Key West is a fantastic place to rent out!! Old Town is the place to be

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