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Updated over 3 years ago, 07/17/2021
New Member From Bakersfield, California
Hello Everyone,
I finally created an account! It is now time to get serious about my real estate investing goals. I hope to make my first real estate investment within the next 9 months. Due to my work and family situation, I am really interested in the vacation rental business and hope to start my venture with a successful property. I'm in California now, but considering making investments outside of the state (i.e. Florida Keys, Las Vegas, Hawaii). Any input/ advice is welcome.
Welcome to the Game !!!!
Lots of Great content on here!!
Hello fellow Bakersfieldian,
The vacation rental investment business is a tough one. It's hard to cash flow on those. Not impossible, just hard. If you are adamant about breaking into this type of investment, I would highly suggest that you be very patient and run the numbers as conservatively as possible. Here are some things to consider:
1) Vacation rentals fluctuate a lot in terms of demand, which is one of the biggest reasons they don't cash flow as well (or as regularly) as your typical rental properties. In terms what times of the year vacation rentals do well, summers are big because kids are out of school, and certain holidays are big times as well. Other than that, it's hard to keep your vacation rental occupied during the whole year. In terms of demand fluctuation year by year, sometimes there are slow years where people stop traveling and vacation rental property vacancies go way up, and it's stuff you can't control as an investor. The September 11th attacks were a good example of this - people stopped traveling by plane for quite a while and vacation rentals took a big hit. This is not a problem with your typical rental property, the rent is pretty much always going to be paid each month with few exceptions.
2) Due to these unpredictable fluctuations in demand, it's harder to accurately estimate what kind of cash flow you can expect on a vacation rental. Sure, your mortgage payment will stay the same every month. But it's harder to predict what income you can regularly expect to come in. Also, maintenance costs will have to be factored in - if you live in Bakersfield but own a beach condo in Hawaii, you are going to have to get a house cleaner to clean up after the previous tenants: take the trash out, vacuum, wash the bed sheets, and just make sure the place is clean in general. Also, if that beach condo is in an HOA, which most of them are, you need to factor in the fact that HOA fees tend to increase regularly in these expensive vacation areas, they never go down. All of these factors make "running the numbers" on these properties very difficult, and in my opinion it's a high risk investment.
So anyway, I don't want to sway you one way or the other, especially if your life makes owning a vacation home more feasible than the average person. But just keep these things in mind. Vacation rentals are really risky investments overall, and it's really hard to accurately predict cash flow on them for the reasons stated above. Another thing to consider is that you (and I) live in the best place in California for owning high cash flow rental properties. Bakersfield is one of the most desirable markets for investors in California because the price-to-rent ratio is so high compared to the rest of the state. Whatever you choose to do, I wish you the best of luck in your investing!
Hi @Garrett Hilt, welcome. Vacation rentals can work but you'll want to run numbers as if it were a traditional rental in case all of a sudden AirBnB is regulated out of existence or something. Another idea is corporate rentals. They are similar to vacation rentals except less turnover since minimum stay is usually 30 days. Corporate rentals might also work great in an area that's wouldn't work good for vacation rentals. However, if you evaluate as if it were a traditional rental, you'll be safe. Check with @Gene Hacker, I believe he has some vacation rentals in Kern Valley.
@Garrett Hilt , I used to have a vacation rental in Alta Sierra. It did really well but it was very time-consuming. I had a cleaning person and a really good system in place but you are essentially placing a tenant every few days. Managing the cleaning lady and website was nowhere near a passive activity. We ended up turning it into a long term rental. We get less income but it is worth it when it comes to getting that time back.
Vacation rentals sound great...kindof a have your cake and eat it too. But I think most people would be better off investing in the most profitable income property they can find, and pay for vacation rentals when they want to go somewhere. It is not as glamorous but it will usually pencil better.
I always try to make the best financial decision and try to elimate emotion from the deal....easier said than done.
Welcome to Bigger Pockets. The Bigger Pockets book store if full of great books: https://www.biggerpockets.com/store
Hey Garrett welcome to BP man your on the right path to success man ! read as much as you can listen to all the podcasts and always be soaking in new information. I'm from Hawaii so you ever wanted to come out here and do some investing we can go over some the market trends.
Happy investing man from Oahu
@Garrett Hilt Aloha and welcome to BP! I am a broker in Maui and have several clients that do very well with their vacation rentals here. Most units in the better complexes, if managed well, have achieved an 80% occupancy rate average over the last several years. I believe this is what separates Hawaii from many other markets, our demand is mostly year-round. If you would like to get more detailed information I am more than happy to share some scenarios with you. Let me know, and enjoy all the resources this platform has to offer!
- Patrick Franta
Invest by the profit and loss statement, not emotion
Aloha and welcome to BP @Garrett Hilt--
There have been some very valuable comments posted on this thread...some a bit more self-serving.
You mentioned [Due to my work and family situation, I am really interested in the vacation rental business].
Can you elaborate a bit? Are you in the resort biz already (with direct vacation rental experience), do you plan to live in it at some point in the near to mid term, or do you just like the concept of renting out a place that allows you go play when you want?
The one comment about Hawaiian vacation rentals stated that they "have achieved an 80% occupancy rate average over the last several years".
My response to that is that "all boats rise on a high tide".
Being that resort destinations generally rely on discretionary $$ to generate demand/revenue, that demand can vanish very quickly. I have been going to Hi for more than 50 years, lived there for a period, and have seen major price fluctuations (up AND down) as a result of the impact of demand drivers. Some of these drivers, like general US economic recessions, can reduce domestic discretionary $$, leading to corrections in the market.
But there are other demand drivers which can also impact values...such as the GDP of other countries, strength or weakness of the dollar, etc. (especially as it relates to Japan and Canada)
Being from California, I have seen first hand, when we catch 'cold', Hawaii catches 'pneumonia'!
So, tread lightly, my friend...while it is sexy to say you own a condo on Maui, it may not be in your best interest to do so.
Aloha hui hou
Garrett,
Welcome to BP! FL, LV, HI are three totally different markets. Ive played in HI and LV market as a few others. BP is such a great resource and like all things you get what you make of it. Good luck in your RE journey!
Aloha, Garrett,
Welcome to BP, lots to learn as that's what I'm doing!
Roy
I genuinely appreciate the warm welcomes, words of encouragement, and advice shared. As I continue to learn and explore I will be sure to use the forums to ask more questions and give progress updates. As I learn to navigate this website I will be responding to some of your individual posts. Thank you!
hi garrett, welcome to bp! just wished to introduce myself. formerly from washington, dc, i'm just getting started in the staging arena in california and i'm looking to make some connections as well. thanks and sincerely, sydney
@Gene Hacker am curious about your Alta Sierra LTR, am considering the same if STR too time consuming. How much does a 1Bdrm rent for LTR? Can I PM you? Thank you, Vivian
@Vivian Brady, That post is very old. I have had a much better experience with short term rentals lately. The concept is much more widely accepted with travelers today and technology has come a long way to make the management much less time consuming. We are actually going to be changing that cabin back into a short term vacation rental once we complete a few updates.