Vacation Rental

[Rhonda C.]

Hello everyone,
I am buying a condo in the heart of Leavenworth to use as an income producing vacation rental. I have not closed on the property yet, but am already overwhelmed with what needs to be done!
1. bathroom bath/shower works, but looks terrible..
2. the kitchen is 1990 so appliances are tired.
3. Octoberfest, one of the 2 busiest times of the year is almost here ie highest $$/night of the year. Feb-May is DEAD
4. Almost forgot...A/C is the wall unit that you find in older hotels. This is not urgent, but wondering if anyone has ripped one out for something more asthetically pleasing?.
Do you recomm end that I remodel the shower (at the very least) or just give discounts to vacationers and communicate as to why, so I can at least realize profit right away? Or stop stressing about October and spend that time updating the place to be in shape for Nov?
Has anyone offered a less than stellar rental for the short term?
Thank you for your ideas

[Timothy Daniels]

Originally posted by @Andrew Grieb:

@Timothy Daniels Timothy I noticed you said you are already in the vacation rental game; we currently own 7 standard buy and hold properties and we are eager to buy a condo in two different VR markets that we travel to regularly . 

Can you give us some guidance on how you conduct DD on a VR property?  It might help Rhonda above and I know it would be greatly appreciated by us.  Thanks for your input.

 Hi Andrew,

DD on VR is really the same as any residential rental--income vs. expense divided by purchase price equals cap rate.  The only difference is that the numbers in each of those categories is usually greater (e.g. $150 per night, but I pay for all utilities, tv/internet, furnishings, linens, cleaning, and even coffee). Your management costs are greater (25-50%) if you have it managed, And your window for income generation is often seasonal.  To figure out your potential income, look at what people are getting on vrbo, airbnb, and tripadvisor.  You could even call a fee of them and ask what kind of income they anticipate each year and what conditions make for a good year vs. a bad year (to assess risk).  Remember in the expense category to include sales tax, tourism tax, business licenses, etc. (location specific).

In many cases I have found that the value of a vacation rental is in the owner's opportunity to use it himself rather than a financial advantage.  In other words, net income over a year is just about the same as using it for residential rental if you account for management expense (many people self-manage and don't put a price on their time).  So why are you buying the vacation rental? 

Remember to account for depreciation of furnishings and for upgrades as you're in a competitive market with higher expectations than a residential rental. And keep in mind that this is your business (hospitality business).  If you're inclined to be angered by the ridiculous and/or inconsiderate use of your property, you may be better off not getting into VR.

That said, my VR renters have, by and large, been gentler on my property than my residential tenants (I'm not at a ski slope!) as they spend more of their time exploring and eating out...they don't come to visit my VR. Ifor I have a bad one, they're gone in a couple of days.

If you have any specific questions, just ask. I hope this all helps.