Vacation rental property - reasonable investment idea?

[disneysteve]

I have identified a specific area that I invest in - the Smoky Mountains region. I started investing there in 2005 and have come to know the market there fairly well.

Excellent post. You covered a lot of important points here for anyone considering this.

[Nutria]

Excellent post. You covered a lot of important points here for anyone considering this.

Unlike a certain member who's handle is very similar to sv2008.

[disneysteve]

Most property owners can do without a management co. if they are willing to commit a little time to the thing.

I think this varies somewhat by region. If you own in a very crowded and competitive market, having the marketing muscle of a good management company can be a lot more valuable than in a less competitive area. For example, in the Disney World area there are literally hundreds and hundreds of rental properties. Many potential guests prefer to deal with a company rather than an individual when booking a stay. Right or wrong, they feel safer that way, especially since many owners in the area are from outside the US. Some folks are skittish about sending money to some stranger in England to rent a house in Florida. But they're happy to send their money to a reputable management firm local to the area.

[TexasHusker]

I think this varies somewhat by region. If you own in a very crowded and competitive market, having the marketing muscle of a good management company can be a lot more valuable than in a less competitive area. For example, in the Disney World area there are literally hundreds and hundreds of rental properties. Many potential guests prefer to deal with a company rather than an individual when booking a stay. Right or wrong, they feel safer that way, especially since many owners in the area are from outside the US. Some folks are skittish about sending money to some stranger in England to rent a house in Florida. But they're happy to send their money to a reputable management firm local to the area.

Since I ended up owning a management company, I'd be hard-pressed to disagree.

[TexasHusker]

One area that is REALLY starting to intrigue me is southern CA, specifically south of LA in Dana Point and nearby.

I looked at a golf course home at Monarch Beach Resort that was a little over $1 million. I believe it would do spectacularly, though I would have to completely liquidate my TN properties to swing it.

[TexasHusker]

POST REMOVED AS SPAM

I would stuff my money under my tempur-pedic before I would risk it for 5%.

20% would be a different story.

[LivingAlmostLarge]

Do the numbers the really work for the Orange county area in Dana Point? How much did you buy the properties in smokey mountains? Is there a return you looked for? How did you find the smokey mountains as an investment area.

[TexasHusker]

Do the numbers the really work for the Orange county area in Dana Point? How much did you buy the properties in smokey mountains? Is there a return you looked for? How did you find the smokey mountains as an investment area.

I'm really not interested in a real estate rental unless I can net AT LEAST 12 percent.

In the Smoky Mountains, there are literally THOUSANDS of rentals. So if you just go and buy a rental, it might not do that well. You have to find one that is unique and offers guests a unique experience. Mountain Views, Resort access, proximity to attractions, water front, river front, etc.

My niche is RIVER FRONT. All of my properties are on a trout stream, where kids can do down and fish, float, and throw rocks. Only about 1 in 100 cabins in the Smokies has this feature, so I search and search for the right deal. I have a pretty good idea of what the thing will gross per year, but you don't have to guess on this - just ask the realtor for the last three years' receipts. If they can't produce them, your price just went way down.

One property I bought there for $210,000. It is about a 200 year old cabin. The revenues were declining - down to about $14,000 a year - because the owners allowed it to become an absolute dump.

I bought it in 2010 - and paid about $60K more than I should have. I spent about $20K on it to renovate it and re-furnish it.

It does about $32,000 per year in rent. I used to just rent it myself on VRBO before I started my own management company. But the income and expenses break down roughly as follows:

Per year expenses:

$4000 utilities
$1500 taxes
$1400 insurance
$1200 lawn
$3000 repairs and maintenance

Net income is about $21,000. HOWEVER, I am able to deduct ALL of the expenses, PLUS I get a deduction for depreciation. That equals about $17,500 in annual deductions, putting about $400 per month additional in my pocket from income tax savings. So my annual NET YIELD is about $25,000 +/-.

That is about 11 percent a year return. However, this particular property I overpaid for - the bottom didn't occur until about a year ago.

I have another property that I paid about $300K for, which is netting about $40,000 per year.


As for Orange County and/or Dana Point, I would have to do more research before I could give you an educated answer, but there is not question there are good investment opportunities there. Ocean front isn't a possibility due to the great expense, but you could have ocean view and come out very nicely. Price of admission is going to be from $1 million to $2 million.

It all depends on the weekly rental rates of area homes - check VRBO to get a good idea of the rates AND occupancy. Your goal should be 220 nights per year. Anything more is possible, but not likely.

[LivingAlmostLarge]

Texas those are some very hefty numbers. I am very impressed that a vacation rental that can generate that sort of cash flow. I think the OC rentals will be very risky though.

[TexasHusker]

Texas those are some very hefty numbers. I am very impressed that a vacation rental that can generate that sort of cash flow. I think the OC rentals will be very risky though.

It all depends on what you pay and how many nights per year you can rent it for. 11-12 percent annual net is quite doable. You just have to look a bit.

I met a couple who is doing it in Dana Point - they have 4 condos. They live in one, and the nightly / weekly rentals from the other 3 pay all of their expenses. Look on VRBO at the listings in OC - lots of people are doing it !

[LivingAlmostLarge]

Maybe but what is the couples vacancy rates? I feel having stayed a lot in vrbo in the southern california that you can get 2 bd condo on the beach for $100/night. I've done that in San Diego and LA. So it's possible. I've found in southern california with the cost of places/HOA i don't get how owners really make those types of returns. Most landlords usually don't and usually count on california appreciation rather than actual cash flow to make the property valuable.

[TexasHusker]

Maybe but what is the couples vacancy rates? I feel having stayed a lot in vrbo in the southern california that you can get 2 bd condo on the beach for $100/night. I've done that in San Diego and LA. So it's possible. I've found in southern california with the cost of places/HOA i don't get how owners really make those types of returns. Most landlords usually don't and usually count on california appreciation rather than actual cash flow to make the property valuable.

Looks like there's around 1300 Dana Point area rentals on VRBO, so the proposition is worthwhile to a few anyway...