1st Daily Vacation Rental Property - Strong Returns

[Gabriel Graumann]

Investment Info:

Single-family residence buy & hold investment in Paramus.

Purchase price: $450,000
Cash invested: $85,000

Purchased a single-family residential property not located in a HOA controlled community in eastern Mesa, AZ. Planned to use the property as a daily vacation rental from the start, so all improvements and amenities were made according to that plan.

What made you interested in investing in this type of deal?

I've invested in every other type of residential property, and based on the local returns for comparable properties, we couldn't beat the ROI potential for the price. Our family had stayed at dozens of this type of property over the years and we had already assembled a list of things we'd want in a property, preferred finishes, amenities expected, and what elements pushed a property over the top for us with the "wow factor". We wanted to replicate this on a property close to us.

How did you find this deal and how did you negotiate it?

Found the property sitting on the local MLS for over 30 days. Offered $50K below market at the time the offer was written knowing our local market was dropping not increasing. Effectively we wanted to buy no higher than where we'd anticipate the market would be 6-8 months in the future. Seller agreed to the offer and we went mutual within a few days of original offer.

How did you finance this deal?

We opted to use cash on hand for the purchase, improvements and furnishings. Our estimated budget for the improvements and furnishings was $85,000 with an additional $15K in reserves. Long term we will refinance this property once the income is stabilized and the rate and terms are advantageous. Right now it would not make sense to give up 7-9% in interest just to free up the initial capital invested. There are cheaper ways to recapture that capital while letting this property cashflow nicely.

How did you add value to the deal?

Completed a full facelift. New flooring, cabinets, fixtures, paint inside & out, resurfaced the cool deck, and updated the landscaping. We also added a pool heater, a hot tub and large putting green. The goal was to make it a turn-key vacation rental without the need to return in the future to enhance or fix it. This avoids future down time for the property. You only get to be "NEW" to the market once, so we wanted it to hit the ground lacking nothing and able to collect 5 star reviews.

What was the outcome?

The pictures speak well to the quality of the property and professionalism we were targeting. We utilized a professional management company that specializes in vacation rentals in our local market, not a national chain like Vacasa or Evolve (both of which we interviewed). Our bookings started coming in within 2 weeks of going live on VRBO and Airbnb. We currently are booked almost solid through April, with a few weeks here or there still available. Very good for a new property w/o many reviews.

Lessons learned? Challenges?

Opted to PM this one myself due to proximity, which was fine but drained a lot of time that could've been better spent on other deals. Unless you want a part to full time job, hire a property manager who is hands on and local. The national chains are decent, but for the large fee they all take, you are still left with tasks to oversee. A local manager can do more than most national ones for the same or less money w/o losing any income. Buy higher end furniture, it's lasts much longer.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked with local contractors that came through referral relationships as my first two choices were booked when I needed them.

[Gabriel Graumann]

@Account Closed To date we have somewhere around 13-14 separate bookings, with all but 4 coming in from VRBO. There are 3 from Airbnb and one was a referral/repeat customer of the management company who was looking for a new house on their return visit. We'll see if these percentages remain consistent long-term. I have noticed that the VRBO booking fee is a little lower than Airbnb, which guests may be influenced by if they check properties on each site prior to booking.