All Forum Posts by: Julie McCoy

Research what comparable properties are renting for month-to-month and use that as your metric, and factor in any seasonality, vacancy, high/low seasons etc.  That seems like an uphill battle even in the best of circumstances.  There's plenty of markets where $800k will gross you many times that and not limit you to monthly rentals.  

@April C. The steps you've outlined are completely possible and many of us on this forum are doing that already.  I don't have any knowledge of the Canyon Lake, TX market so can't speak to whether it's a good market or not - @Nancy Bachety brings up very valid points re: making sure the $250k purchase price will be competitive with other STRs in the area that are bringing in ~$40k annually.  If so, those numbers are solid.

You'll also want to investigate the market - I'm assuming it's a popular getaway destination for the Austin/San Antonio crowds.  What sort of regulation is there on overnight rentals?  How long has that regulation been in place?  (if relatively recent, more regulation could follow; if it's been in place for many years, that indicates some stability)  How long have people been vacationing in the area (is it recently popular, or has it been popular for decades?)  What's the seasonality?  Is its character pretty down to earth or is it going to do a South Lake Tahoe and outlaw most vacation rentals because the wealthy people who own second homes there don't want tourists next door?

My market, the Smoky Mountains in Tennessee, has been an established overnight rental market for generations - long before STR became a "craze". That is the kind of market I want to invest in - where the local economy is so dependent on overnight rentals that it would be harmful for them to be over-regulated. Where the tourism economy has been established for decades. There's more vacation rentals here than permanent residences/long term rentals by an order of magnitude. Is there risk? Yep, if the tourists dry up we're all in some deep trouble. However, they didn't dry up during the Great Recession or during the pandemic (aside from a few weeks of lockdown) so I feel good about the odds.

If Canyon Lake or another market you like has similar characteristics, I think your plan is a good one!

Talk to a lender, but in a nutshell, they don't care if you own a primary or not.  I owned a "second" home and several investment properties before I ever purchased a primary.  They will want to know your lease payment to count it as part of your living expenses, but owning a "first" home is not a prerequisite to owning a "second" home.

@Mike S The 10% down loan is meant for a second home/vacation home loan.  Many people will purchase a second home using these loans and when they are not using it, they will rent it short-term on AirBNB or VRBO.  I am not a lender but my understanding of the current regulations on these loans is that so long as you intend to use it as a second home, AND you retain control over it (e.g. you're self-managing and not handing it over to a PM), there is no rule against utilizing it as a vacation rental when you're not using it personally.  Do verify with your lender.

What @John Underwood said is correct - you can't use projected rental income to offset the debt from a vacation home, just like you wouldn't be able to use projected rental income to offset the debt from a primary home loan.  You can only use projected rental income to offset debt from an investment loan, which is a minimum 20% down.  

So it boils down to understanding what each product is meant for.  You can purchase a property, plan to vacation there a couple weeks a year, and rent it out the rest of the time on your own, and utilize the 10% down loan to purchase it as a vacation home.  If you have no intention of using the property personally, then by all means get an investment loan at 20% down and use projected rental income to help offset the debt.  

@Michael O'Hanlon on the more practical side, if there's no infrastructure for STRs, who's going to be your boots on the ground to clean/maintain it?  And how are people going to know it's there?  I know you mentioned a marketing plan, think about what kind of time/money investment that will take vs. just starting in an established area.  I do zero marketing and have 90%+ occupancy. 

I haven't been to Captiva since I was a kid... it's so small, and there is/was the trolley there, hard to imagine a "bad" place to be (especially if there's a golf cart guests can use). I can't say I'm at all familiar with Sanibel though, we always stayed at Captiva! Not sure if that helps at all, but it's what I've got. LOL Make sure you're familiar with any local regulations that might limit STR.

Hey Lee, I don't have metrics for you, as they're going to be property- and market-specific.  I only rented a spare room to a traveling nurse once, LOL, I've done some research on the topic but my day-to-day business is overnight rentals in a vacation market.  I did not do a background check in my one instance, but I did check references and called the agency that placed the nurse to verify they were legit.  Other professions may require more/less vetting.

 Good luck!

Treat them like long-term tenants.  Have a lease, know the landlord laws.  Find sites that cater to travel workers and see if you can find comps in your area to base your rents on, but if they're trying to book more than 28 days at your nightly rate, keep rolling with that.  See if you can source any info about their housing stipend so you don't overprice, but aren't leaving money on the table either. 

One night at a hotel may not be sufficient to interrupt their rights at long term tenants - again, know your local laws.  The traveling worker niche can be a good one, just make sure you're set up in ways that protect yourself.  What kind of workers?  @Paul Sandhu has an incredible business housing industrial plant mechanics etc.  

@Brett Milde I've been going to Maggie Valley since I was a child, I love it there :)  Not sure how the vacation rental returns are, but it's a fabulously beautiful place that is dear to my heart!

Cabin.  The Smokies is about an experience, and people want someplace different from their suburban house.  Cabins do best, then chalets, and anything that doesn't feel like a "typical" suburban home (we have a bunch of weird stuff up here).  The ordinary house vibe will be the last thing to rent, all other things being equal.  CAN they rent?  Sure, there's enough demand here to go around.  But it won't see the prices or occupancy a cabin or similar will.