Making money with vacation rentals

[TexasHusker]

I have a few vacation rentals in TN and thought I would share the numbers from this year.

Cabin number 1, I paid $240K for back in 2005. I financed 80% of it. It is now valued at around $350K, and this year, the gross rents were approx. $36K. Now, this was a big year for a lot of repairs and maintenance on that unit, so net rents were only about $20K. They would ordinarily be more like $25K. I pay the mortgage payment with the $20K and still have $$ left over.

Cabins number 2 and 3, I paid $280K for them both, in 2013. They are now valued at around $360K. This year, the gross rents were a combined $54K. After all expenses, the net rents were about $42K, and I don't have a mortgage on these properties.

Cabin number 4 actually burned to the ground in late 2016, and we finally got it rebuilt this fall. We spent approx. $310K rebuilding the cabin, and it is valued at around $340K. We expect it to do $50K gross per year in rents, and about $40K net. Of course, we have $19K in yearly mortgage payments on it too, but it should still leave us with $21K or so per year in net earnings.

So all combined, when you factor in my down payments, I have around $410K of personal dollars tied up in these properties, and they produce approx. $68K per year net to me. I also get approx. $7000 per year in tax deductions for depreciation, so my earnings are around $75K. That represents an 18% annual yield. Additionally, my equity has grown substantially because renters are paying off the mortgages while the values are climbing.

If you ever have a question about vacation rentals for income, I am happy to help.

[bjl584]

I'll be having some questions come spring time

[TexasHusker]

I'll be having some questions come spring time

Looks like you bought a great opportunity!

[Atretes1]

I have thought about vacation rentals. Currently, I have 2 single family and 1 Duplex that I self manage locally. I don't live in a vacation area so I would have to look somewhere else. The logistics of having long distance properties puts me off so far. Maybe I should look in TN and have your Property Management company manage it...lol. I also thought about Colorado because I may eventually move there.

[TexasHusker]

I have thought about vacation rentals. Currently, I have 2 single family and 1 Duplex that I self manage locally. I don't live in a vacation area so I would have to look somewhere else. The logistics of having long distance properties puts me off so far. Maybe I should look in TN and have your Property Management company manage it...lol. I also thought about Colorado because I may eventually move there.

You can certainly pay someone to manage it, but you give up a lot of profit by doing so. We charge 32%. But for several dozen homeowners it’s worth it.

What attracted me to eastern TN was the idea that you could rent your place twelve months a year. Our occupancies per year run from 65-75%. That would be really hard to pull off in a more seasonal resort area.

[bjl584]

I'm looking at another one in my area. This one would be a long term hold

[disneysteve]

You can certainly pay someone to manage it, but you give up a lot of profit by doing so. We charge 32%.

I had no idea management fees were that high. I always figured it was in the 10-15% range. What does that fee cover?

[TexasHusker]

I had no idea management fees were that high. I always figured it was in the 10-15% range. What does that fee cover?

Management fees are as high as 50 percent depending on the area. You’re paying for minding, managing, troubleshooting, and marketing.

We occasionally take over someone’s cabin who has been handling it all themselves. We tyoically double their gross income - at a minimum - because we know the business pretty well.

[disneysteve]

Management fees are as high as 50 percent depending on the area. You’re paying for minding, managing, troubleshooting, and marketing.

We occasionally take over someone’s cabin who has been handling it all themselves. We tyoically double their gross income - at a minimum - because we know the business pretty well.

That's interesting. Do you manage properties where the owner is pretty much little more than the owner and you guys really do all of the day to day stuff? I could probably see myself buying a rental property if I could get a trusted manager to take care of everything for me, even if it meant giving up a chunk of potential profit. And, as you said, a pro would probably do it far better than I could on my own anyway, so it might not actually cost much, if anything, in the long run.

[TexasHusker]

That's interesting. Do you manage properties where the owner is pretty much little more than the owner and you guys really do all of the day to day stuff? I could probably see myself buying a rental property if I could get a trusted manager to take care of everything for me, even if it meant giving up a chunk of potential profit. And, as you said, a pro would probably do it far better than I could on my own anyway, so it might not actually cost much, if anything, in the long run.

Yes, all except one of our owners lives out of state. One owner hasn’t ever even seen his property since buying it four years ago.

It is just like owning a mutual fund. The owner gets the checks and that is about it. We have had to fire a few clients that wanted to micromanage us.