Vacation Rental Numbers seem pretty good to me

[Matthew Bailey]

So this is a deal that I came across, it’s out of my league but I was curious what you guys might think. It’s a vacation rental on a lake, for sale for 1.3M. They claim (an investor selling it) it has $190,000 per year in rental income (which could go up since the current owner lets family and friends use it some months for free. That’s a 1.2% rule on a property over $1,000,000. For comparison, I live in Silicon Valley. A 1.2M home here might rent for about $50K per year. Beside the volatility of the rental market (I assume it’s much more dependent on the economy and if people are willing to splurge for a vacation rental property at like $7k/week as the seller says) this looks kind of compelling. Ignoring the details of the property itself and just looking at the numbers, for arguments sake, what do you think? I can’t afford it, I buy and sell vacant land personally so this is out of my niche and out of my league but I have an interest in rental properties and this seemed like an interesting deal. I’d love to hear everyone’s thoughts on it, if not just for the conversational value. If you’re interested in the property I can point you towards the seller.

[Aaron K.]

I am assuming that the number they quoted you is revenue, (so before expenses)  short term rentals have more expenses due to the high turnover, also someone has to manage it much more actively which costs more if you aren't doing it yourself.  Yes it is dependent on the economy and that there are enough people to spend on a vacation, so it could be more cyclical.  Also depending on where the property is located it could be normal or even over priced for the area.  As a general rule returns (excluding appreciation) are better anywhere outside of Silicon Valley.