All Forum Posts by: Mel Selvidge

Hi, J.  What your proposing is pretty common in places like remote Utah (like on the scenic road between Bryce, Capitol Reef, and Canyonlands) where you can't go to Home Depot after lunch if you forgot the #6 screws.  The "hotels" are little rows of kit homes, like little Tuff Shed cabins, either with bath or with a shared bath house for the group.

In Norway, every campground (and every tiny settlement has at least three) has a row of similar things called hytte.

Your biggest hurdle if you wanted to do it in the Bay Area is probably going to be zoning re: the # of structures per lot allowed.  Also, beyond a certain number of units, you will likely be considered a hotel, so you'll have to follow that set of regulations and pay those fees.  

There's an RV motel in Joshua Tree that I totally love and would get a huge kick out of knocking off elsewhere, although the location there is especially perfect for it.

1.  Show exactly what you're offering in your listing.  Even if your place has a few shortcomings, if they're obvious in your listing, people are more likely feel satisfied with what you delivered.  If you make it look or sound better than it is, you will get complaints.

2.  Be impeccably clean, and toss out anything that is too stained or beat up.  Buy towels, linens in quantity when they're on sale to account for that hair grease that just won't come out.  Get things that either wear hard (non-teflon cookware, pleather couch) or can be cheaply switched out (slip cover couch, Ikea duvet covers, open stock dishes to replace damaged ones and keep the set matched) if they get thrashed.

A penalty-based cleaning fee (instead of a flat fee) will leave your guests feeling, well, penalized after their stay.  Even if they know they deserved it, it may eclipse the gushy thoughts that they might have otherwise shared about the sixer of Sierra Nevada that you left for them.  As Johnson mentioned, I've found that the guests who pay more take better care of the place and are actually happier with their stay.  Bargain hunters are really concerned with getting their money's worth.  My property manager takes a smaller deposit than many and rolls the cleaning fee into the nightly charge to keep things more positive, and less punitive.  

3.  Make people feel like they are sharing your home and not like they are guests in a hotel.  Their experience will be more special, they will be more forgiving of imperfections, and they will treat your stuff more respectfully.

I pay 10%  + all actual costs incurred by my place + my share of group costs (I.e. group advertising, dumpster, etc.) for full service.  Since your lack of control over the booking and marketing processes could create as many headaches as just doing it yourself or might mean low occupancy over which you have no control, I think 10% is still fair.

Housekeeping is the real eyes on the place.  Mine are worth their weight in gold.  Bad ones will kill your business.  Before I'd accept responsibility for the integrity of a vacation rental's extensive contents and agreed to be the  angry guest go-to-guy, I'd want authority to hire and manage good housekeepers.

Thanks for organizing, @J Martin, and for the connection suggestions!  Good luck with your bourgeoning hipster-bnb empire!

@Elizabeth C., @Troy Fisher , and @David Cheung, it was nice to to meet you all!  I hope we all get to connect again at the summit J is organizing.

Hi, there!

I don't know your market, but these are a few questions that come to my mind reading your post.

1.  What is your goal in putting so much work into a place that costs you money to run?  Appreciation?  A place to call your own someday?  Positive cash-flow once you pay down your debt?  On the face of what you posted, unless you're creating a lot of equity in the rebuild, it doesn't sound like a good business (since you're still losing money at 100% occupancy), but if you want it for other reasons, maybe it's right for you.

2.  You didn't mention the cost of furnishing the home.  I've had to buy bedspreads for all of my beds 3 times this summer, have had a half dozen towels get stained, an electric tea pot get melted, the furniture gets damaged, etc.  If you have a 5 BR, you're probably looking at at least 12 people, 6 beds, 12 sheet sets, 24+ towel sets, 12 dish sets, etc.  You need two of everything that needs to be washed between guests or you risk having to put stained stuff out for the next guests and pay housekeeping to wait on laundry.  

People are hard on your contents, and you or your manager will need to replace what gets broken or stained before the next guests check in, or you might read about it in your reviews.  Self-managing a VR at a distance is challenging for this reason.  I only want places that will still cash flow after paying for good local management.     

3.  Is the rent that you're seeing for places 3/4 mile from the beach or for places at/across the street from the beach?  What is the occupancy rate for places that are as far from the beach?  A property manager can tell you what prices and locations are actually booking rooms and at what rate.  The VRBO calendars help, but you won't know if the books represent full-ticket guests or owner usage.   

4.  How limited is the supply?  Can you afford greater losses if all of your neighbors get in on the game and undersell you and your yearly losses increase?   

Lastly, just a warning…check with the town to see if you need inspections, permits, or to collect taxes.  For example, where my property is located, there is a 3 BR limit to get a transient occupancy permit.  In the next settlement over, if you buy a home that doesn't already have a permit, you need to get the approval of your neighbors to get one.  The permits are $300-500/yr.  Guests pay 11.25% tax that needs to be submitted monthly.  I think that as the VR industry matures and problems arise, local govts. are getting more involved in their regulation for better and for worse.

Good luck to you, whatever you decide!  It can be a good business, but it's one with a lot of moving parts!

Mel Selvidge

http://www.sierrahaven.com

I always think a house or block seems safer when I don't see caged windows and burly fencing everywhere.  Personally, I have never wanted to live like I was "in the embassy" even when I lived in a high crime area like West Oakland, but I can see the liability in not doing so also.

If you've got a rental in a rougher area, but not the worst (e.g. where 25%-50% of the places have bars on the windows) do you leave/put them up or take them down?  What do tenants and prospective tenants prefer?

Hi there, and welcome!

Your homeowners will probably not cover you for accidents that happen when you are using your home as a business, and your business insurance will not cover you for accidents that happen when you are using it as your home.  Your insurance provider should be able to help you with what you need.  Your current insurer may be able to help you.  Because I'm in a crazy fire area, I can't get regular insurance on my property, so I have to go with a specialty insurer (like Lloyds of London) through a broker.  It's got good liability coverage and 2 years of lost income coverage, and it's not much more than a regular policy would be.

Unless you really have a lot of assets, the cost of forming an LLC ($800/yr in CA) might not be worth it for you if you're only occasionally renting your place. You can get quite a bit of liability insurance cheaply, and maybe talk to a lawyer about the best way to deal with the issue of the pool.

You'll want to check with your planning department to see if you need to get inspections (I needed one from building and one from planning) or permits.  A quick googling shows that you're supposed to collect Transient Occupancy Tax, although they may not enforce it much.  If you skip this step in my county, they will shut you down and put a lien on your house!  I think there is more of a process for this in places with a mature vacation rental industry (Yosemite, Tahoe, etc.)  

Other concerns that come to mind are really just about creating a good business in a crowded market.

With so many people doing vacation rental homes, I think there is a pretty high expectation about the accommodations.  In my market (Yosemite), most places exist almost exclusively  to be rented, so no personal belongings are in the areas that guests access.  (Many people have separate owners units though.)    To see what guests like/don't like in your area I recommend looking at managed groups of properties tripadvisor, yelp, and booking.com and not just VRBO or airbnb.  I think people are kinder on the latter two because they have a greater sense of dealing with you as an individual.  If you want the full snarky truth, look at what people say when they think they're giving feedback on a company.  Actually, consider using a top rated management company because they can tell you exactly what you need to do to get ready for business.

I hitched my wagon to the local management group with the highest rating on Trip Advisor.  As a group we're able to buy a lot of high profile ad space on Facebook, adwords, etc.  In popular areas, it's easy to get lost in the stack of places on VRBO, especially if you're new and don't have many reviews.  Being managed costs a lot, but my estimates are that I'm netting more because I'm grossing more (due to both higher prices and more booking) than I would if I was doing it on my own.    

Also, it helps to have a handyhuman at the ready to deal promptly with things that you as a homeowner or even a long-term tenant could live with for a day or two, but a vacation guest paying top dollar for a luxury stay will not.  (i.e. A tile fell off of my counter last time I was there, and it needed to be glued back and grouted before the guests arrived a few hours later.)

So with the caveats…It really is a way to earn good money on properties that are too expensive to cash-flow with a lease.  It's a pleasure to do business with the well-to-do vacationers who rent my place.  They are lovely, prepaying people who share beautiful stories of their stays in the guest book.  Best of luck to you, enjoy the adventure!

Do you have a different cash emergency fund?  If so, you could use that, and have the 401K as your really bad emergency fund.  If not, I'd be worried about running 9 places without some source of readily available cash.  You could also try to take a loan against some of your equity.

I'm a Suze Orman fan, and one of the drums that she likes to beat is that a 401K can't be touched in bankruptcy, whereas in CA (don't know what it is in your state), only $100K of your home value can be protected by creditors, and of course, your rental properties are not protected at all.  

I like to err on the side of having a cushion if every investment tanked or if my husband lost his paycheck.  I guess it's tempting to thing that such things are improbable, but my own house burned down 10 moths after I bought it, and were it not for my boyfriends' parents stepping in with an "emergency fund" things would have turned out differently for us.

I bought an REO from an investor who didn't have enough of a cushion to get him through a couple of bad years, and I guess I don't want to be so maxed that I would fall into the same trap if things went awry.

I hope your losses aren't too much!  If your situation is such that they are peculiar and there will be rental income next year, you can carry them forward and deduct them then without declaring professional status.  

I've been worried I'd see some on paper this year as I bought and rehabbed (hands-on) a vacation rental at a significant distance, so I've got a lot of largely one-time expenses with mileage, per diem, 1/5 of a full house of furnishings, all of the consumable cleaning/maintainance a place needs, etc.  (Which are current and which are capitalized is another question though…)  Even though it looks like a moot point now that I've finally taken care of my bookkeeping, I though a paper loss wasn't out of the question. I've kept really good logs of my time and activities just in case.  I'm also hoping to get another property before the end of the year that won't have much time to bring in any income but will need the same outfitting.

Going through this with the tax advisor last week, he strongly urged me to consider just carrying the losses forward, if I even had any, since they would be small compared to the cost of an audit and a one-time artifact of the startup processes.  Basically if I have losses they'll come off of my investment income next year instead of my husband's income this year.  He said that by checking the "pro" box with only a property or two, no matter how much work it actually was to rehab it, I was a sitting duck.

I have mixed feelings about skipping legitimate deductions to avoid audit though.

disclaimer…noobie, not a cpa, just passing on what I've learned asking the same questions.

My biggest worry with a Section 8 housemate is that the individuals reason for needing assistance would be something that would make them a challenging neighbor, and you are not allowed to ask if a prospective tenant has a mental illness.  I don't have experience as a landlord, but I have one as a housemate and one as a friend to someone with Section 8 assistance:

• In the last apt. that I rented briefly before we moved into our "forever home" the downstairs neighbor was a beautiful young woman with a tragic psychotic disorder.  She would scream and fight and throw things at her imaginary tormentors all night long.  It was excruciating.  She was ill and needed a place to live, but it was not sustainable for us to live above her either.  I could be wrong on my recollection/knowledge of the set up, but I believe her very physically handicapped aunt was the official section 8 tenant, and the niece was a "guest" who was not supposed to be staying there.  Since the niece wasn't the tenant, and I'm guessing that evicting someone as painfully and extremely debilitated as the aunt (extreme arthritis?) challenged his morality and charity, nothing happened.

• A friend of mine (a close friend's brother) is mentally ill and receives Section 8 assistance.  He's a super sweet and intelligent guy, but he does make some questionable hygiene choices, and about once a year he has a melt down that ends with cops and/or EMS coming.  He also has two registered service cats that pee on everything but help keep him calm.  I love this guy, and I love cats, and I'm glad he has nice housing, but it would be a tall order to live with him.

I've known several people less well through my friends in the itinerate rock climbing community and my work in community colleges who received section 8 assistance because their social and emotional disabilities were significant enough to make full-time, ongoing employment untenable.  Again, mainly these are likable folks who just need help achieving a decent standard of living, but it could be challenging proposition to share a home space with them.