All Forum Posts by: Account Closed

Hi @Sandy Franklin -

I have a vacation rental in Portland, Oregon and manage it myself and 20% seems awfully high to me, I think the standard is 10%. The terms of the agreement (i.e. no payment until checkout) also seem very fishy to me as typically most vacation rentals ask for full payment in advance with no refunds if canceled less than 30 days before the rental, so I m thinking you should be paid 30 days before the rental even occurs!

All this being said, every market is different and it depends on the service your property manager provides and how much time they spend on your property.

You said all they do is collects deposits, rental payments, and fees from the tenants. If you are responsible for the fees to list the property on VRBO and other advertising sites, and are the one who takes calls for items that break or to provide help with turning on the TV, then 20% is definitely way too much. Also who pays for repairs and maintenance to the property?

Even if they pay for advertising, 20% is probably too much because listing it on 2 or 3 sites will only cost 1,000 to 1,500 per year. So unless they are providing a gold standard experience for your guests (free airport pickup, daily briefings on what is happening in the area with a half day guided tour at no charge) I think you may be paying way too much.

Heck, if you do not mind me installing a keyless entry, I would build a web site for the property, pay for listing and handle all bookings and automatically email you every booking agreement as well as give you access to a web based system so you can see the details of all the costs involved in your property for 10% :)! Although I am in CA, I am always available and even booked my Portland property from Greece at 3:00 AM.

Seriously however, I second @Eric Black and would recommend shopping around. You may even want to have a friend call your PM company and see what terms they offer them. Finally, you may also want to google Vacation Rental Forums and see if you can get some additional information there. I know VRBO/Homeaway has a community forum and I think Yahoo does as well.

Feel free to PM me if you need more information want to talk further!

Thanks!

@Jack Tucker

Since I have/had less than no idea on this question, I just Googled real estate private money lenders and at privatemoneygoldmine.com it seems the lenders are at 6% to 10%, but I have no ideas on specifics as to length of term and initial down required.

I know all the deals I have seen in the Portland, OR area with Owner financing have been 20% down and 6% for 5 years, with a balloon.

Also aren't the terms are what you are comfortable with and how you structure the deal? At some level are you just trading one income vehicle for another with the added bonus that you get the asset back (albeit there is a risk if the property gets trashed due to bad management) if the lender flakes out (and of course the hassle of calling the note).

Hopefully some of the experienced private money lenders will jump in on this one, as it is a fantastic question.

@Jack Tucker

Excellent point and one I forgot to mention! When we purchased our SFR home, we knew that zoning restricted "transient housing" (defined as less than 30 days in Portland), but a quick review or VRBO and the Portland legal case history showed that: a) I could only find 1 VRBO rental in Portland in an area zoned to allow it and b) I could find not legal cases about zoning issues that involved a VRBO. As a result, we moved forward with a less than 30 day rental.

About 8 months in, I received an inquiry from VRBO asking how I can rent my property for less than 30 days due to zoning, which did not matter since I was rented through 2014 with longer term renters. As a result I moved to a 30 day rental and have been having no problems.

So ensure to check zoning and HOA before plunging in so you know your risk.

@Bill Coleman

My vacation rental is what opened my eyes to the cash flow potential of real estate. We purchased our property with the idea of having someone else pay for our retirement home and provide us a place to stay when in town (we purchased a placed in Portland, OR). We got a wake up call when we were booked for two years within two months of listing the property on VRBO, Homeaway and other sites.

Now to answer your questions:

1) Due to pricing the rental too low to gain market share, we are break even, but will have no trouble making 8.6% Cash on Cash return on an initial 65K investment (20K was to furnish the house) and a 6.7% Cap Rate. So the numbers work, but are nothing better (and arguably worse) than any turn key you could find from some of the Pro's on this site.

2) Yes, I feel it is super successful, especially since it is in the Portland, OR market which has experienced huge appreciation and unless you purchase and reno, it is super hard to find a ready to go property that will cash flow. I also feel it is successful because I have been able to automate the process in a HUGE way and manage remotely very successfully. I actually believe their is a huge unmet need for 30 day furnished rentals in the area and am currently considering pulling equity from our home primary home in SF to purchase another property.

3) Mistakes I made - other than the pricing thing, no biggies. Sure, we purchased a keyless entry system that would fail randomly every 5 months or so, so we had to replace that with another model, but we though ahead and had a lockbox hidden within inches of the front door so no guest was ever waiting fro more than three minutes to gain entry. The other mistake was perhaps spending too much on furnishings. Unlike @Lynn Currie we were hoping to be able to stay there some times, so the thing is furnished super well. While I feel this has helped the place be booked solid, the 20K to furnish the house was a big chunk on top of the down payment and I think we could have saved 5K to 10K up front and not really impacted the "curb appeal".

4) Good decisions - Like @Lynn Currie buying it. The house was built in 2006, and we are the second owners and paid less than the original buyer. Within 12 months, the place has appreciated over 20%, so that is HUGE on top of it paying for itself. Secondly, I have not settled for "ok" support. My house cleaners are awesome and keep the house feeling new two years later. Along these lines, even my long term renters get a free house cleaning once a month, as it is a $135 insurance policy since my house cleaners let me know the condition of the house. Likewise, I have a great maintenance guy who treats the house likes his own and is not afraid to do a $100 repair without asking me when he is on site. Automation. I have a NEST Thermostat, so I can turn down the temperature remotely and even when my long term renters go away, the thermostat knows they are gone and turns down the temperature automatically. I use Lodgix to auto respond to leads and provide quotes and have a web site (http://portlandhouseforrent.com) where people can book online without me. Finally, I did my research up front and spent a ton of time on VRBO.com and was able to understand that I could break even at the lowest rent for a 2 bd, 1 bath on my 3bd 2.1 bath home as long as I rented for 50% of the time, my mistake was pricing it this way and being booked so far in advance.

In closing, while I believe the numbers for the Vacation/Furnished/Corporate rental are great and command much more than unfurnished, when you take into account the up front furnishing costs, you can chew up $500 a month of income for two years easy just to pay back the furnishing cost. As a result, I do not believe the net returns of furnished rentals offers a significant upside to a turnkey and certainly not to a reno. Another thing to consider is that the cash I spent up front on this property could have purchased a turnkey property outright generating twice the return based on Cap Rate.

All this being said, I am probably going to stay in this market because I believe I will never have to chase rent, and the tenants have all been great.

I would be happy to answer any other questions, feel free to send me an offline message.

@Adam Craig

One more thing, be sure to check the zoning and HOA if you are buying a house.

My place in Portland, OR prohibits vacation rentals in neighborhoods so I now have to force a 30 day minimum, or one renter a month (which luckily has not been a problem), and most of the HOA's I reviewed in scouting for my second home also prohibit rentals of less than 30 days.

It seems a number of people blow off the zoning and HOA thing, but it is a risk that needs to be considered.

Thanks!

@Adam Craig

Hey Adam, I got into RE investing by purchasing a home that I was thinking would be my retirement home and I wanted others to pay for it (why not right?).

Anyway, I was VERY upfront with my broker (FWIW) and told him I was going to use it as a second home / rental and he said: a) as long as you use it for two weeks a year you are good and b) after one year you can do with it what you may.

I think the key is just being upfront with the broker, so good luck!

PS - if the deal goes through and you decide to rent may be retirement home (he

@William Hale

Welcome to BP! My first (and only so far) property is a vacation rental that I just wanted to break even on as I was thinking it would be a good retirement house and why not see if I could get others to pay for it!

After getting booked so quickly (it was booked for over a year after 2 months of being on the market) I realized this was a business and I could make money, so now we are getting ready to purchase our second home.

Since I started from scratch, I would be happy to share any information on my experience. From which vacation rental web sites worked the best for me, to the management systems I reviewed and am using to automate most aspects of the process, to my vacation rental web site to all the forms and documents I use, to pricing lessons learned, I would be happy to help!

@William Hale

Welcome to BP! My first (and only so far) property is a vacation rental that I just wanted to break even on as I was thinking it would be a good retirement house and why not see if I could get others to pay for it!

After getting booked so quickly (it was booked for over a year after 2 months of being on the market) I realized this was a business and I could make money, so now we are getting ready to purchase our second home.

Since I started from scratch, I would be happy to share any information on my experience. From which vacation rental web sites worked the best for me, to the management systems I reviewed and am using to automate most aspects of the process, to my vacation rental web site to all the forms and documents I use, to pricing lessons learned, I would be happy to help!

@Kyle Doney

So I purchased a home in Portland hoping to make it pay for itself and am actually making money and am really torn between expanding my "furnished rental portfolio of 1 :)" or turning to traditional homes or multi-family residences.

While my market is different than yours, the best way I have found to determine the market is to look at VRBO.com. Homeaway.com, and Flipkey.com to determine: a) what other rentals are nearby and b) how booked they are.

VRBO.com is the best source so start there and search by dates using the "my dates are flexible option."

Vacation rental owners will tell you that in most cases you can bet on renting your place 17 to 24 weeks a year, so you need to figure your profit on that. Also, you can review the listings that you find to see you can get away with charging additional for the cleaning that will be required between each visitor to cover that.

Finally, be sure to check the HOA's for the condo, usually condo's in resort areas have no "less than 30 day rental restrictions" in the bylaws, but most condo's in the city specifically forbid it.

A lost note of caution is if the area is only good for skiing - one poor snow year and poof your profit goes away with the sunshine...

@Bill Jacobsen - thanks for the other point about cost of capital and margin above the cost of capital. The appreciation rate over the last 15 years is averaging 5%, but in this area, I am thinking 2.5% to 3% is solid.

Thanks for all the good input!