Flip and hold vacation rental

[Katie Criddle]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $455,000
Cash invested: $70,000

Our first purposeful real estate investment: a beachfront property short term rental. This 1600 SF, 3 bed 2 bath SFH in a gated community serves as both an oasis and as an income producer. We closed on the property three weeks prior to already committed renters, so we had to move fast to bring the cosmetics up to our standards.

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

We like the emerging gig-work style of vacation rentals. It's here to stay, and used smartly can add tremendous value to a property and surrounding communities. We wanted a family getaway spot with out three small kids. And so the opportunity came along to meet our family goals at the same time as starting our financial journey as real estate investors.

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

We were looking for properties in our home state to take advantage of existing real estate licenses, but as with each of our properties we find the right deal first, then consider the location. Basically we found the listing on Zillow. It had been pending, but came back on the market. For me that's a sign that I might be interested in the property. I like solving problems and if a property comes back on the market after a "pending" status, then there's something there to be solved.

How did you finance this deal?

We financed the deal through conventional financing with 10% down. On such a cash-flowing property it's worth it for us to pay PMI at $120/mo. Buying out of PMI would be a 2.8% return on $50K. No good. We had the cash for the deal, but used a HELOC for the down so we could keep our cash for repairs and future projects. Paid the HELOC off before the new year (6 months) with earned income and bonus checks.

How did you add value to the deal?

Added a ton of value. As a buyer, we were flexible enough to make the deal happen when maybe others couldn't. specifically, the Owners did not have enough funds to fix the septic prior to closing, and local contractors don't do work at risk, so we converted (after we knew we were all in) the earnest money into a non-refundable deposit. Our ability to make the sale happen allowed us to capture early value. The rest is marketing a vacation property...

What was the outcome?

We love the outcome. We use local workers to service the property inside and out. Automated as much as we can. Really wanted to focus on mid-range guests. Families with kids, small groups traveling that want a nice but not expensive place. We think we will bring in more cash flow by staying in a specific lane, than trying to push rates and amenities beyond the reach of the majority of travelers.

Lessons learned? Challenges?

Learned a ton about vacation properties. Had to figure out local codes, permits, transient taxes, fees, collecting fees, HOA rules, business licenses and state taxes, insurance coverages, etc. Do it right. don't put yourself at risk by not being a pro when you do vacation properties. I cringe when hear people say how easy it is to do a vacation rental - obviously they don't know what they don't know.

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

We asked the listing agent to do a dual rep for a reduced overall commission, which allowed for a lower purchase price. She and her office were fantastic, but were very local to that market. I can find a contact if anyone needs one for Seaside OR.