Short Term Vacation Rentals in Phoenix?

Question

I live in Green Bay, WI and recently visited Phoenix and absolutely loved it. I've been thinking of getting into short term vacation rentals for awhile now and this seems like the perfect opportunity. I am in talks with Turnkey Vacation Rentals and everything sounds great.

The one thing I can't find is examples of other people who are using a company like Turnkey and what their returns are? Say if I put $50k down on a $200k house what could I reasonably expect for a return? Is it reasonable for me to expect say $3k/mo. in gross rents then after their 18% fee and the mortgage and a typical month of expenses to cash flow say $200/mo.?

If you have any experience with short term vacation rentals (self manage or having a property management company like Turnkey run it) I would love to see your numbers and if this would be a good investment for me in the Phoenix area.

Kyle Seidel · Answer

Thanks for your responses @Cara Lonsdale and @Tyler Work. Cara I have help for the Phoenix area now but if anything happens with that I will contact you. Thanks!

Stone Jin · Answer

Hi Kyle,

It depends on where your property is located.  200K houses in today's market you are not buying in prime VRBO neighborhoods.

$3000 a month on average or just in peak season.  We've owned and operated 4 VRBO in Chandler AZ, our winter rates were $2800 for a 1 bedroom condo in a community very desirable by snowbirds.  However the same condo in the summer months was renting for $1300.  You should understand what the rents will be for your property.

Also, are you including the cost to furnish in the 200K?  Other owner/operators that I've talked to have spent 3-10K on furnishing depending on neighborhood and size of home.

Airbnb and VRBO are both very popular in the valley.  If you are buying a condo, make sure you know the rules of the HOA otherwise it may limit your ability to rent it out.

Good luck,

Stone

Tyler Work · Answer

Hey @Kyle Seidel I frequently put together projections for clients here in Denver and I think your returns will depend largely on what your bottom line is.  If you're planning on putting 25% down you are likely to be able to cash flow (assuming a hot area) even with a property manager charging 20%.  Most cities have pretty bad seasonal swings so you might lose money in the winter but make it up in the summer.  I have done projections for people in suburban areas where it actually makes more sense to LTR than STR due to travel demand.  Check out AirDNA and Everbooked to get a pretty good idea for the gross rents you might see in your area and click on other Airbnb rentals to see what they are charging.

I also definitely echo @Stone Jin on the growth of listings.  Its not quite 20% anymore here in Denver (growth has started to plateau) but the returns are starting to decline.

Hope this helps!

Cara Lonsdale · Answer

Kyle, have you found what you were looking for?  I know there were many people here with some good suggestions.  I would second the idea of using AirBNB over a property management company.  AirBNB has a system in place for you to offer your property for a "Host" to be assigned to manage the rentals and turnover for a % of the rental rate.

There are a few things to consider.  I see that supply/demand was already mentioned, and this is important, but more important is the location.  Demand is always high in the Winter months because of the amount of visitors we get annually, so I wouldn't worry so much about a supply overage.  However, your property has to offer visitors something beyond what an average rental would.  For example, what is within the surrounding area?  What can they walk/bike to?  Remember, these people are coming from out of town, so they want to be able to entertain themselves.

Also, if you are looking to purchase a condo/townhouse or house with an HOA, you will need to make sure that the CC&Rs allow for short term rentals.  Many do not, and require 12 month lease minimums.

I have some ideas of areas to explore if you are still looking.  Just PM me.

Stone Jin · Answer

Hi @Kyle Seidel

The 1 bedroom condo in my example had the following expenses:

Cable/Internet $150/month

Hoa $200/month

Electricity $125/month

Insurance/Taxes $80/month

We didn't have a mortgage, but you can add in your PI.  This is based on a 600 sqft condo, if you are buying a house maybe with a pool your expenses will differ.

If you plan on using it 2-4 weeks I assume it'll be during peak season since who would want to visit Phoenix in August.  I'd really run your numbers carefully.

The other thing to note is that the number of AIRBNB/VRBO is growing at 20% a year in terms of number of listings.  More supply may not be a good thing esp during the off season.

In the winter it varies, we rent with a minimum of 3 days but our regulars will stay for a month usually.  The key is to keep it filled to the max, the duration doesn't really matter.  There usually are discounts based on duration.

Stone

Kyle Seidel · Answer

Hey @Doug McVinua, thanks for your response. Feel free to give me you and/or your company's info as I just started looking for potential property management companies and Turnkey was the first one I've come across as they specialize in short term vacation rentals.

My plan is to build my real estate portfolio here in Green Bay and as that's happening I'd like to buy short term vacation rentals in places such as Phoenix and Nashville since I love both of those areas. I'd love to find a great place and be able to put say $50-$60k down and have a property management company run it all for me. I'd obviously like a positive cash flow and to be able to easily visit there 2-4 weeks a year.

Kyle Seidel · Answer

Hey @Robert Lorenz, the $200/mo. cash flow was just a random number I tossed out because I'm not sure what's typical with a property management company running a short term vacation rental. I'd probably end up visiting 2-4 weeks a year and the rest of the time I'd have Turnkey (or another property management company) rent it out. Do you have any examples of a typical monthly breakdown of rents/expenses/cash flow?

Kyle Seidel · Answer

Thanks for your response @Stone Jin. Do you find that most people who are renting from you are doing so for longer periods of time such as a month? I'm also curious as to a basic run-down of your income vs. expenses. For example, your winter rates are $2,800. What would your average expenses be to operate that?

Once I put my $50k down and say another $10k in furnishing/potential fixing up; I'm not sure if there'll be much if any room to profit if I have a property management company also taking 18% for their services

Doug McVinua · Answer

@Kyle Seidel Phoenix is a good furnished rental market. @Stone Jin has provided solid input, the rates are very seasonal in Phoenix. Summer months are often a time that vacancy rates are high in that sector.

One nice single family, I manage the owners use for a couple months out of the year and we rent it when they don't want to use the property. It has a pool so we are able to find summer month tenants at a reduced rate. Of course, we provide full landscaping, pool service etc for the property year around (For less than 18%).

For many owners, the numbers are OK for furnished rentals, especially if you want to also use the property. For others, the hassle of furnishing the property and the higher costs of operating drive them to a more traditional long-term rental situation. The long-term gets them in the market, gives them a reason (write-off) to visit the valley and one day they may even convert a property or multiple into something they live in.

What is your reason for this investment?

Robert Lorenz · Answer

Not sure where you're looking, but with the numbers you've given you're looking at 4.8% COCR....

Were you planning on moving to Phoenix, or using the vacation rental for yourself once in a while?

Short Term Vacation Rentals in Phoenix?

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