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Those that have vacay rentals: how do you truly make money off them?
Posted on 7/18/23 at 8:30 am
Posted on 7/18/23 at 8:30 am
Wife and I do well and invest a little but recently have been thinking more and more about the future and having revenue streams especially after retirement (far in the future).
We were recently looking into dabbling in vacation rentals, buying condos on the Gulf Coast, renting them out on VRBO or Airbnb etc.
I understand the Airbnb bubble is bursting a bit but I feel like that’s always going to be business in beach towns.
The numbers just don’t add up to me, especially with mortgage rates, insurance rates, management company rates, etc being what they are. Even slightly undervalued properties that have consistent 60ish% occupancy, the “profits” if there are any, don’t seem to be remotely worth it.
Are you guys cash buyers? Do the management yourself?
Is the key just getting in at the exact right time ie when properties are undervalued and mortgage rates low?
Your wisdom is appreciated.
We were recently looking into dabbling in vacation rentals, buying condos on the Gulf Coast, renting them out on VRBO or Airbnb etc.
I understand the Airbnb bubble is bursting a bit but I feel like that’s always going to be business in beach towns.
The numbers just don’t add up to me, especially with mortgage rates, insurance rates, management company rates, etc being what they are. Even slightly undervalued properties that have consistent 60ish% occupancy, the “profits” if there are any, don’t seem to be remotely worth it.
Are you guys cash buyers? Do the management yourself?
Is the key just getting in at the exact right time ie when properties are undervalued and mortgage rates low?
Your wisdom is appreciated.
This post was edited on 7/18/23 at 8:32 am
12
Posted on 7/18/23 at 8:46 am to Fun Bunch
Like you said, the bubble has burst a bit.
I dont own any but I know the VRBOs we have used in Panama City and Pigeon Forge were owners who paid cash, managed themselves, and looked at it more of a way to reduce the cost of their vacation home instead of a business.
I dont own any but I know the VRBOs we have used in Panama City and Pigeon Forge were owners who paid cash, managed themselves, and looked at it more of a way to reduce the cost of their vacation home instead of a business.
Posted on 7/18/23 at 8:51 am to Fun Bunch
quote:
understand the Airbnb bubble is bursting a bit but I feel like that’s always going to be business in beach towns.
The numbers just don’t add up to me, especially with mortgage rates, insurance rates, management company rates, etc being what they are. Even slightly undervalued properties that have consistent 60ish% occupancy, the “profits” if there are any, don’t seem to be remotely worth it.
The people making money hand over fist on vacation rentals bought 5+ years ago when those properties were like half of what they are now.
Posted on 7/18/23 at 8:54 am to JohnnyKilroy
quote:
The people making money hand over fist on vacation rentals bought 5+ years ago when those properties were like half of what they are now.
I’ve heard this for more than 20 years now.
Posted on 7/18/23 at 9:01 am to Fun Bunch
A buddy bought a couple units in orange beach after the 2008 crash
He has absolutely crushed it on those
I keep hoping for another 2008
Would not do it with current prices
He has absolutely crushed it on those
I keep hoping for another 2008
Would not do it with current prices
This post was edited on 7/18/23 at 9:01 am
Posted on 7/18/23 at 9:21 am to Fun Bunch
quote:
The numbers just don’t add up to me, especially with mortgage rates, insurance rates, management company rates, etc being what they are
#'s don't lie. Rising interest rates and astronomical insurance spikes are making many STR and LTR properties non profitable. You're not missing anything, it is what it is at this point. Either sales prices are going to have to reflect rising ancillary costs(insurance and interest rates) or these sellers are going to have to hold on to their properties. Good investors aren't making moves on emotions, they plug #s in and wait for the spreadsheet to tell them yes or no.
Posted on 7/18/23 at 9:58 am to southside
quote:
#'s don't lie. Rising interest rates and astronomical insurance spikes are making many STR and LTR properties non profitable. You're not missing anything, it is what it is at this point. Either sales prices are going to have to reflect rising ancillary costs(insurance and interest rates) or these sellers are going to have to hold on to their properties. Good investors aren't making moves on emotions, they plug #s in and wait for the spreadsheet to tell them yes or no.
Exactly......I've never figured out a way to make money off them either. They TYPICALLY will cash flow until you plug in the 20-25% management fee. From my understanding you truly get what you pay for on management companies. Many of these rentals have tight turns and if you go cheap on a management company (that also cleans) then you're doomed IMO. One or two bad reviews and your numbers are going to suffer immensely.
Very hard to fully leverage these things up to 80% and make money. Lower leverage means lower return, BUT those doing 50-65% LTV's have enough of a safety net so a good trade IMO.
Posted on 7/18/23 at 10:09 am to southside
quote:
#'s don't lie. Rising interest rates and astronomical insurance spikes are making many STR and LTR properties non profitable. You're not missing anything, it is what it is at this point
As an investment only strategy I don’t think we’ll see a return of good deals on properties on top of the gulf. The insurances are too high and the risk is too severe. As storms come and go, and rebuilding means cash only then sure the price will come down, but that is a cash only price. I personally have no desire to have investments in harms way even though I’m about two blocks from the gulf. If I didn’t need my house for work, I’d prolly get out.
Posted on 7/18/23 at 11:02 am to Fun Bunch
They must do well because so many places along the coast are rentals.
We hit Pensacola Beach for a week every summer, usually renting 3-4 condos each year. Last year the management company quoted us a price (for this year, we like to reserve our rentals a year in advance) that was almost double what we had just paid. We looked on VRBO and found a massive house (9 bedrooms, 8 full baths with a pool and a large game room) for half the price of the condos.
The rising rates (at least in FLA) seem to be an effect of rising insurance costs as well as rising property values (read: increasing property taxes).
If I were to do it, I would try to find a condo first. While you have an HOA fee, there is so much of the repair work which is done by the condo association. For a house, that's either going to be the management company or you (the place we're staying at is maintained by the owner, it's well taken care of but so many renters just DGAF - like letting their kids use the pool shepherd's hook to "pole vault" over the pool, thus having to replace the pool's liner).
You might be better off with first buying a rental home or two near you then turning them over to a management agency to run, then see how you like it.
We hit Pensacola Beach for a week every summer, usually renting 3-4 condos each year. Last year the management company quoted us a price (for this year, we like to reserve our rentals a year in advance) that was almost double what we had just paid. We looked on VRBO and found a massive house (9 bedrooms, 8 full baths with a pool and a large game room) for half the price of the condos.
The rising rates (at least in FLA) seem to be an effect of rising insurance costs as well as rising property values (read: increasing property taxes).
If I were to do it, I would try to find a condo first. While you have an HOA fee, there is so much of the repair work which is done by the condo association. For a house, that's either going to be the management company or you (the place we're staying at is maintained by the owner, it's well taken care of but so many renters just DGAF - like letting their kids use the pool shepherd's hook to "pole vault" over the pool, thus having to replace the pool's liner).
You might be better off with first buying a rental home or two near you then turning them over to a management agency to run, then see how you like it.
Posted on 7/18/23 at 11:26 am to Fun Bunch
Vacation Rentals are no different than long term rentals. Its all about running the numbers and knowing the market. You can't just go pick a condo and expect it to make money, that's not how it works at all. Some people, many really, do that and get lucky. Many don't.
The biggest problem is wives and picky husbands, that care more about a dick measuring contest on what they own than the actual investment.
Yes with 6% plus interest rates it will be almost impossible to cash flow with a management company right now. 3-5% is doable paying cash and 5-10% can certainly be had if you really know the market.
A lot of people that do well find one neighborhood, building, etc that rents well (they get lucky finding it) and then like the numbers and buy multiple in that area to reproduce the results.
If you use a vacation rental property it can be a great investment. Use it in the off season or shoulder season almost exclusively, and rent it out during the peak times. For a beach place don't go during spring break or summer, go late april and September and then in the winter.
The biggest problem is wives and picky husbands, that care more about a dick measuring contest on what they own than the actual investment.
Yes with 6% plus interest rates it will be almost impossible to cash flow with a management company right now. 3-5% is doable paying cash and 5-10% can certainly be had if you really know the market.
A lot of people that do well find one neighborhood, building, etc that rents well (they get lucky finding it) and then like the numbers and buy multiple in that area to reproduce the results.
If you use a vacation rental property it can be a great investment. Use it in the off season or shoulder season almost exclusively, and rent it out during the peak times. For a beach place don't go during spring break or summer, go late april and September and then in the winter.
Posted on 7/18/23 at 11:37 am to Fun Bunch
quote:
Those that have vacay rentals: how do you truly make money off them?
Posted on 7/18/23 at 11:40 am to baldona
Baldona has the sound take on this. For me I made my money on equity. I was just really starting to see good revenue in year 4 but had an offer where I profited $65k on a one bedroom in the oldest complex in the area. I took the W I had in front of me.
Posted on 7/18/23 at 11:45 am to Cosmo
quote:
I keep hoping for another 2008
Prices were a steal 2018-2020.
Posted on 7/18/23 at 12:01 pm to Fun Bunch
quote:Correct.
The numbers just don’t add up to me, especially with mortgage rates, insurance rates, management company rates, etc being what they are.
Buying now, you're just hoping to break even on cash flow and have the rental revenue subsidizing the cost of you having a place at the beach for your own use when its not rented out. And building equity over time
Posted on 7/18/23 at 12:07 pm to notsince98
quote:Which I think was the business model.
owners who paid cash, managed themselves, and looked at it more of a way to reduce the cost of their vacation home instead of a business.
Posted on 7/18/23 at 1:43 pm to Artificial Intel
quote:
I keep hoping for another 2008
Prices were a steal 2018-2020.
And people during 18-20 said everything was too high.
Posted on 7/18/23 at 2:01 pm to Motownsix
quote:
I’ve heard this for more than 20 years now.
But it’s kind of true.
2002, 2009 were great with the unbelievably good entry points for most areas.
If you can find the data, so back and look at the selling prices of places in the Florida panhandle as an example in 2008-2010.
Posted on 7/18/23 at 2:02 pm to Cosmo
quote:same, would love to purchase in New Orleans but the recent SRT laws may have curbed that. Would be nice to have a home there to stay a few times a year when I'm in town and rent out when not.
I keep hoping for another 2008
Posted on 7/18/23 at 2:08 pm to Artificial Intel
My inlaws balked at buying a Destin condo for like 65k in the 80's. Said units run about 1.5-2 million today. 
They said it wouldn't have cash flowed in those days.
They said it wouldn't have cash flowed in those days.
Posted on 7/18/23 at 2:17 pm to Artificial Intel
quote:
Prices were a steal 2018-2020.
Where? I remember things being a little soft, but not really the huge great deals out there
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