All Forum Posts by: Kendall Luelf

Pigeon Forge / Sevierville / Wears Valley Owner of 3 cabins here. The Smoky Mountains are a great place to invest but care must be taken in current market conditions due to the high prices in the area. Between the Gatlinburg fires, cheap property tax, and the increased popularity of vacation rentals, the values are skyrocketing and is certainly a sellers market. Again, deals can be found but care must be taken. I’ve been away from bigger pockets for a while as there weren’t many owners of short term rentals in the past but it seems as though there are several now which makes for great discussion! Can’t wait!

We've got two vacation rentals, in negotiations for a third.  They are located 10 hours away and we finance through a bank local to our primary residence.  We have a mortgage on our primary residence while the other three are investment loans for a fixed 30 year between 4 and 5% apr.  interest is cheap and only goes up a small amount due to it being investment vs primary residence.  Do it the right way, you'll thank yourself.  As long as you have funds to show you can afford it, you'll have no issue.  Expect to put no less than 15% down and up to 25% for lowest possible rate

Just remember that the use of PayPal is a convenient means for guests with limited funds to bypass the newly added and unneeded service fees of the booking sites.  PayPal charges a 3% fee if they don't select friends and family (VRBO charges 2.5% for credit cards) and this is a deductible fee at the end of the year.  How often are you asked "is this the best price" or "what is the service fee"...bypassing the fee can lead to more bookings at no cost to you (0.5%).

@Jen Faulkner we often accept payments through PayPal in which only 50% is due upfront.  Upon accepting the booking/creating invoice, I use the calendar on my phone to set the second payment due date with a reminder.  On the day of, my alerts will go off and remind me...I simply go to PayPal, open the invoice and click the remind button which will send a reminder to the guest that the remainder is due.  There's probably a software that does this automatically for you but PayPal makes it easy if you just set up a reminder for yourself.  The phone calendar works great!

Brandi Carballo I own and manage 2 vacation rentals located in TN from my residence in IL. It works great for us but you must develop a trustworthy team including cleaning personnel and pretty much every aspect of maintenance that the amenities in your cabin would require (hot tub tech, fireplace tech, hvac tech, plumber, etc...). We've been lucky and have great people and great cleaners with great communication. It also helps that my wife doesn't work and is able to field inquiries as needed. The management part isn't too time consuming as long as you have good people to handle the issues, but there are times when it is very daunting because as in life, it seems when one thing goes wrong, several other mishaps follow. At first it may seem overwhelming but you'll quickly develop a routine to handle inquires, refunds, schedules, etc... If you start your own website and marketing campaign (highly recommended), the process becomes much more time consuming. Timothy made good points but managing out of state is not impossible by any means. Factoring in management fees isn't a bad idea in the case of becoming incapacitated because you really never know but it's not something we personally do which may or may not be a mistake but it is what it is. I do know that a lot of times, once you factor them in at a typical rate of 30%-40% , it's hard to be profitable. There is definitely a risk reward aspect to owning vacation rentals as with any business so I don't think it's wrong to run the numbers based off of you managing it instead of a management company. If you were opening up a restaurant, you would run the numbers based on you overseeing all operations (of course you'd have managers but probably not to the extent of overseeing all aspects of the business). I use this mindset with vacation rentals IF they are being used as investments because it is a business...it just so happens to be a business that has the option to be hands off. In my opinion, if you want to be profitable, you need to be hands on and that's exactly how I'd run the numbers.

I recommend doing some quick research on HomeAway or VRBO to see the demand for vacation rentals in that particular area. I'm not familiar with the area but based on the description you gave, you could potentially advertise as hunting/fishing area while renting....just a thought. If there's a demand and the costs work out in your favor (or better than a standard 1 yr lease rental) then I'd say you're not crazy at all. Just remember that as a vacation rental, all utilities are your responsibility along with more aggressive advertising than a standard rental. All of this obviously cost more so ensure you have favorable numbers before you consider.

Josh Braun Thanks for all of that information! That is exactly what I was looking for!

Timothy Daniels I get what you are saying but my use of cash on cash return is based on the fact that I am leveraging my own cash into these properties. But you're right, each investment strategy is different and you must take this into account!

@Brent Coombs

This is something I'm not aware of.  To me it's not off base in the least but unfortunately, bankers think much different than me.  Most of the properties do have rental history upon request.  I don't often rely on this number but use it as more of a guideline.  My last property purchased did $12,000 per year in rental income.  I knew that it was mismanaged or something to that nature and I was sure based on the property, amenities I could offer, and location, that I could resolve the low rent issue and have a successful investment. Sure enough I found the problem rather quickly after purchasing and starting to rent it out.  Turns out the well on the property didn't yield a lot of water at random times and the guests would quickly run out of water until the well refilled.  The property was previously managed by a large rental company with hundreds of other properties.  They knew of the issue and instead of dealing with it, they sent potential renters to their other properties leaving this one vacant.  

There is a much longer story about this issue than stated but long story short, I installed a water storage system for a very reasonable price and increased rental income to $36,000 in the first year. 

I guess the point of that story is that numbers often lie and there could be a possibility that banks won't acknowledge previous rental income.  I surely hope a rental that has solid figures backed by proof on financial statements would be considered though.  I plan to keep the community updated on my progress with lending as I believe there are many like myself looking to expand but are stuck.

I've received some great pointers thus far and look to explore all of them!

@Jeff R.

My wife and I currently own 2 properties that are used as vacation rentals. In our case they have been an outstanding investment earning between 20%-50% cash on cash ROI. The main key to success is to be very active with the rentals. It goes without saying that you need to own in an area with a demand for vacation rentals.

As an owner & manager you need to be prepared to put in the effort to attain bookings and more importantly, serve as a great hosts once you receive these bookings.  The Vacation Rental world is drastically changing everyday and competition is becoming fierce.  Reliance on listing sites is easy to have and if your seriously considering venturing into this business, I recommend that you factor in the costs to build your own website (or have it built), along with a good marketing campaign for the site and property to be found in the vast and aggressive world of Google.  With your own site, blogging is a must as it serves as a serious driver for traffic to your site.  

With all of this said, you can see that it takes a lot of time invested to have a great rental.  If you can't put this time in then you need to seek out a a manager who can consistently book your property without insane fees.  Typical fees in our location for a management company to take over start at 40% of the properties gross rent.    If you decide to go this route, ensure this is calculated into your investment figures.