Investing in a vacation rental

[rkbabang]

Like a lot of people I've been moving back into cash the last couple of months (this is about the same time of year I started moving into cash last year).  But this time I decided to put some of that cash into real estate.  This is something I've been thinking about for a while now, and now that both of my kids are adults, my wife and I have some time on our hands to put into something like this.  We bought a property on Lake Winnipesaukee and close to Gunstock Mountain with the intent to rent it out as a vacation rental on Airbnb.  We put 1/3 down and financed the rest with a commercial loan. We bought it in the name of an LLC for liability reasons.  We just closed on Monday (a week ago today) and spent 3 days working on it before our first rental arrived on Thursday.  We went on 3-4 hours of sleep/night trying to get everything we wanted to get done in those 3 days and didn't quite make it, (I've never installed a dishwasher at 3am before), but we got the place looking ok.  We will have more time to work on it in September when the busy season is over.

 

I talked to one person from this board already a few months ago who gave me some great advice on how to get started, get funding, etc.  Has anyone else here done anything similar?  I think with airbnb rentals success probably depends a lot on the specific location and the price you paid.  I think I did good, but only time will tell.  I was pleasantly surprised how quickly the reservations started to come in as soon as we went live.

 

(and now for the shameless promotion) If anyone is looking for a nice place to stay by the lake or for skiing this winter:  https://www.airbnb.com/rooms/36937304?s=67&shared_item_type=1&virality_entry_point=1&sharer_id=278245836

 

[Orchard]

how are your loan terms vs a 30yr residential loan?

[rkbabang]

how are your loan terms vs a 30yr residential loan?

 

Not as good, but not terrible either.  I got 5% fixed for 5 years then adjusts on the prime rate for the next 5, then again at 10 years for the last 5.  We were able to close in a little over 3 weeks, so I figured I could re-finance down the road if I wanted.  There are no pre-payment fees except for the fact that they waived 1 point of closing costs if I hold the loan for at least 3 years.  So after 3 years it won't cost me anything to pay it off.  Since I will be having hundreds of people stay there, so I thought the liability protection of having it not in my name was crucial.  I've owned the place a week and already 3 families have stayed there.  1 for 1 night, 1 for 2 nights and there is someone there now who is staying 2 nights.

 

[Pelagic]

Would you be open to sharing some of the pro-forma numbers for it in terms of an investment? Occupancy sounds great to start, do you expect to primarily rent it through AirBnB?

[CorpRaider]

There was a guy on that "Millionaires Unveiled" podcast a few weeks ago who had some rentals that were exclusively Airbnb's targeted at mountain bikers in a region of Arkansas.  They didn't get into a ton of detail, but you might find it interesting.

[Castanza]

A family member of mine bought land up in Sauble Beach Ontario about two years ago. Built a cottage on it. Mortgage is$1k a month (all expenses) and they rent it out Spring -> Fall for about $2200/week. They have had almost every week booked the past year. They live in the states and pay some local company $50ish a week to clean it.

 

There are definitely some niche locations you can find as CorpRaider pointed out.

[Orchard]

A family member of mine bought land up in Sauble Beach Ontario about two years ago. Built a cottage on it. Mortgage is$1k a month (all expenses) and they rent it out Spring -> Fall for about $2200/week. They have had almost every week booked the past year. They live in the states and pay some local company $50ish a week to clean it.

 

There are definitely some niche locations you can find as CorpRaider pointed out.

wow that's great. Must be a really nice cabin at $315 per night vs all the other cabins on Air BNB at less than half of that.

[Spekulatius]

A family member of mine bought land up in Sauble Beach Ontario about two years ago. Built a cottage on it. Mortgage is$1k a month (all expenses) and they rent it out Spring -> Fall for about $2200/week. They have had almost every week booked the past year. They live in the states and pay some local company $50ish a week to clean it.

 

There are definitely some niche locations you can find as CorpRaider pointed out.

wow that's great. Must be a really nice cabin at $315 per night vs all the other cabins on Air BNB at less than half of that.

 

Some here say needs to be taken with a grain of salt, sort of like claims on stock portfolio performance  ::)

[meiroy]

rkbabang,

 

Looks fantastic, comfy for a family.  Other than what you mentioned, success also depends on the reviews, as you probably know. If there is something materially wrong with the house it should be fixed promptly. Disappointed it doesn't come with a goat.

 

[John Hjorth]

rkbabang,

 

Looks fantastic, comfy for a family.  ... Disappointed it doesn't come with a goat.

 

LOL! - But I agree with meiroy, rkbabang,

 

It really looks fantastic. What a wonderful spot... - I suppose it would be impossible to maintain usual stress levels while taking a break from the hamster wheel at such a place. I especially try to visualize how the place would look in the autumn [the colours of the leaves on the trees in NH in the autumn]... Do you plan to use it yourselves if it's not occupied by tenants? - Good luck with it to your wife and you.

[rkbabang]

There was a guy on that "Millionaires Unveiled" podcast a few weeks ago who had some rentals that were exclusively Airbnb's targeted at mountain bikers in a region of Arkansas.  They didn't get into a ton of detail, but you might find it interesting.

 

Thanks.  I will definitely check that out.

[Castanza]

A family member of mine bought land up in Sauble Beach Ontario about two years ago. Built a cottage on it. Mortgage is$1k a month (all expenses) and they rent it out Spring -> Fall for about $2200/week. They have had almost every week booked the past year. They live in the states and pay some local company $50ish a week to clean it.

 

There are definitely some niche locations you can find as CorpRaider pointed out.

wow that's great. Must be a really nice cabin at $315 per night vs all the other cabins on Air BNB at less than half of that.

 

Hey that's what my family member told me. I never verified it lol perhaps they embellished. Looking now it actually looks like peak season is more around $230 a night  :P So not quite half, but certainly not as high as I mentioned before. My apologies.

 

 

[oddballstocks]

One of my hobbies is skiing and as most know ski areas are flooded with real estate.  There are usually threads that pop up on buying vacation property at a resort.

 

If I had to classify the responses I'd say 90% are in the "it's a waste of money, we never went, it cost too much, I regret it."  and the other 10% "We didn't overpay, weekend rentals covered our cost, and we enjoyed the space."

 

The common thread on #2 is they had an investor mentality when they went in.  They waited for a deal to make the numbers work, and had correct expectations.  One a ski site I'm on there's a local guy who has been accumulating condos at a local resort.  At this place 99% of home owners are in group one, but he's silently picking these things up dirt cheap and said he has a 20% NOI on the units.  He's also an accountant, so figure conservative, patient, exhibiting a lot of value investing tenants.

 

I love the idea of investing in places like this.  Rkbabang, this is a beautiful cabin, looks really relaxing.  I wonder if you'll be booked solid in the fall with the leaf peepers.  Also might be close enough to ski resorts that you get a few winter dates too.  Now that I'm thinking about it you really have a year round place.

 

As a side note have some good friends who moved from PA up to Bedford, NH.  They love it up there.

[rkbabang]

rkbabang,

 

Looks fantastic, comfy for a family.  Other than what you mentioned, success also depends on the reviews, as you probably know. If there is something materially wrong with the house it should be fixed promptly. Disappointed it doesn't come with a goat.

 

Thanks,  I don't know how a goat would effect reviews to be honest.  I'm thinking it would cause as many negative reviews as positive.

One of my hobbies is skiing and as most know ski areas are flooded with real estate.  There are usually threads that pop up on buying vacation property at a resort.

 

If I had to classify the responses I'd say 90% are in the "it's a waste of money, we never went, it cost too much, I regret it."  and the other 10% "We didn't overpay, weekend rentals covered our cost, and we enjoyed the space."

 

The common thread on #2 is they had an investor mentality when they went in.  They waited for a deal to make the numbers work, and had correct expectations.  One a ski site I'm on there's a local guy who has been accumulating condos at a local resort.  At this place 99% of home owners are in group one, but he's silently picking these things up dirt cheap and said he has a 20% NOI on the units.  He's also an accountant, so figure conservative, patient, exhibiting a lot of value investing tenants.

 

I love the idea of investing in places like this.  Rkbabang, this is a beautiful cabin, looks really relaxing.  I wonder if you'll be booked solid in the fall with the leaf peepers.  Also might be close enough to ski resorts that you get a few winter dates too.  Now that I'm thinking about it you really have a year round place.

 

As a side note have some good friends who moved from PA up to Bedford, NH.  They love it up there.

 

It isn't quite year round.  The last owners had 0 rentals in May both years they owned it.  They showed me there books and they made a solid profit, the mistake they made was trying to do everything themselves.  They lived 1.5 hours away and drove up themselves to clean it every time, did the lawn themselves, etc.  The only thing they hired someone for was snow removal.  The wife was doing all of this and was just seriously burnt out.  We have already found an excellent house cleaner, who is also taking care of the lawn for us.  Her prices are reasonable (below the $125 cleaning fee we charge each guest). 

 

Bedford is a great town.  We've been here 8 years and love it.  A great place to live, peaceful suburban setting, yet close to everything.  Manchester is minutes away, the tech areas of Mass (North of Boston) are well within commuting distance, I even know some people who commute into Boston everyday.  Although I wouldn't want to do that, I was just in Boston yesterday and it makes for a long day.  Luckily I only have to do it 4-5 times per year.

 

[rkbabang]

rkbabang,

 

Looks fantastic, comfy for a family.  ... Disappointed it doesn't come with a goat.

 

LOL! - But I agree with meiroy, rkbabang,

 

It really looks fantastic. What a wonderful spot... - I suppose it would be impossible to maintain usual stress levels while taking a break from the hamster wheel at such a place. I especially try to visualize how the place would look in the autumn [the colours of the leaves on the trees in NH in the autumn]... Do you plan to use it yourselves if it's not occupied by tenants? - Good luck with it to your wife and you.

 

Thanks.  Yes, that area is beautiful in the fall and draws in lots of tourists.  We already have a few people booked the end of September.  We will go up there whenever we get a chance both to do work/maintenance and to enjoy it.  Having the renters pay it off so that we eventually don't need to rent it as often is part of the attraction.  About 4 weeks of rentals will pay the taxes and insurance for the year.

[DooDiligence]

You guys did a great job!

 

I'd take a pontoon boat over a goat.

 

---

 

Vacation rentals are starting to look more attractive to me than equities.

 

1. More thorough knowledge of what you own.

2. More direct control over what you own.

3. Don't have to stare at whipsawed market values every day.

4. Ability to personally enjoy your property.

[Orchard]

Vacation rentals are starting to look more attractive to me than equities.

 

1. More thorough knowledge of what you own.

2. More direct control over what you own.

3. Don't have to stare at whipsawed market values every day.

4. Ability to personally enjoy your property.

Just take a look at hotel numbers during a downturn and you'll be cured very quickly. I'd rather own stocks that might go down than have to work an entire year to make no money.

[rkbabang]

Vacation rentals are starting to look more attractive to me than equities.

 

1. More thorough knowledge of what you own.

2. More direct control over what you own.

3. Don't have to stare at whipsawed market values every day.

4. Ability to personally enjoy your property.

Just take a look at hotel numbers during a downturn and you'll be cured very quickly. I'd rather own stocks that might go down than have to work an entire year to make no money.

 

Then again, in a down year you might have more time to enjoy your property yourself.  You can't really enjoy your plummeting stocks.

 

BTW, I'm not planning to get out of stocks and completely into rental properties, but I think there is a place for this in a portfolio.

 

[FFHWatcher]

I own a cleaning company.  We clean many vacation rentals in SW Florida.  It is very seasonal here.  One thing that an owner of a vacation rental needs to consider more today than 5 years ago, is regulatory risk.  Many communities or towns are passing by-laws that restrict or control short term rentals.  Who wants to buy their dream home next-door to a rental that has new guests every 3 days, 5 days, 7 days, etc.?  Those tenants tend to really 'enjoy' their vacation and it also puts a lot of stress on the house.

Some by-laws will create short term rental 'zones' that may not permit short term rentals, or none less than 7 days or none less than 30 days, etc.  Just something to consider before you buy and something that could affect the value of your investment after you purchase it.  Local permanent residents will put pressure on the local gov't to implement and enforce short term rental by-laws.  Not many people want their next-door neighbor's house to that will basically become a hotel.  For my business, the short term rental market is amazing and the owner always has a spread between what they collect for a cleaning fee and what they payout to the cleaning company/person.

 

[rkbabang]

rkbabang,

success also depends on the reviews, as you probably know.

 

We just got our first review.  5 - stars in every category.  And she wrote publicly:

 

"Cutely decorated, comfy, clean, with fully stocked kitchen, bathroom and laundry. Perfect for our family of five to enjoy. The lake is just steps away and house is close to most everything. Great visit! We will be back!"

 

And then wrote to us privately:

 

"Private feedback

This is just for you. It won’t appear on your listing or profile.

Thanks so much for a fabulous stay! We enjoyed our time at the house very much. Every need was thought of. It was clean, stylish, comfy and just perfect for our family. The set up in the entire place was super accommodating. Probably the best Airbnb we’ve ever stayed in. Thanks again! We will be back!"

 

 

Good reviews and repeat customers can't hurt.

 

[rkbabang]

I own a cleaning company.  We clean many vacation rentals in SW Florida.  It is very seasonal here.  One thing that an owner of a vacation rental needs to consider more today than 5 years ago, is regulatory risk.  Many communities or towns are passing by-laws that restrict or control short term rentals.  Who wants to buy their dream home next-door to a rental that has new guests every 3 days, 5 days, 7 days, etc.?  Those tenants tend to really 'enjoy' their vacation and it also puts a lot of stress on the house.

Some by-laws will create short term rental 'zones' that may not permit short term rentals, or none less than 7 days or none less than 30 days, etc.  Just something to consider before you buy and something that could affect the value of your investment after you purchase it.  Local permanent residents will put pressure on the local gov't to implement and enforce short term rental by-laws.  Not many people want their next-door neighbor's house to that will basically become a hotel.  For my business, the short term rental market is amazing and the owner always has a spread between what they collect for a cleaning fee and what they payout to the cleaning company/person.

 

That is something to look out for.  I don't know if Alton would kill the goose that lays the golden eggs like that, but you never know.  Tourism is how the town survives.  Half of the houses in town are not lived in by full time residents.  Alton is half rental cabins/houses, vacation homes, and seasonal people.

 

According to wikipedia: "As of the census of 2010, there were 5,250 people, 2,145 households, and 1,511 families residing in the town. There were 4,281 housing units, of which 2,136, or 49.9%, were vacant. "

 

[SharperDingaan]

A few take-aways, as we have relatives involved in the business.

We own 5% of modest guest houses in both Paris (France) and Serville (Spain).

 

It's a lot of work, and your 'projections' are almost always over-optimistic.

If you bought wisely, made truly value-additive improvements, and held on to the property for a decade - you may well be OK; but this ISN'T most people. You'll need cleaners, weekly maintainance, handy man/women, a marketer, maintenance capex, and the ability to tolerate extended periods of 'no rent'. The more you can 'spread the load/risk', the easier a time you will have.

 

Be clear on your objective.

To get the most out of the property, you need to be using it part of the time that it is empty, and that use is not 'free'. You're also there when it isn't a popular time to visit, so it also has to be a place you'd like to live in - not just visit. Paris in early January is wet and cold ... but if you like culture, and french cuisine .... it's not a disaster. 

 

Net-net you will most likely come out at a financial wash.

Transaction fees, and cummulative minor capex will erase much of your potential capital gain. Additionally, most of your annual P&L share will be lost to the cost of traveling to/from, and your expenses while on-site. The primary benefit will be that while on-site, your costs were covered. In our case, we get to go to, and stay in both Paris and Serville for a few weeks every year, for an extended period, at essentially a net cost of zero; while protecting the purchasing power of our money. The aim is to enjoy what you have, not try to make more.

 

Everyone is different, but it's not as easy as many would like to think.

Best of luck to you!

 

SD

 

 

 

[Orchard]

Thanks for your wise and honest input SD.

[rkbabang]

A few take-aways, as we have relatives involved in the business.

We own 5% of modest guest houses in both Paris (France) and Serville (Spain).

 

It's a lot of work, and your 'projections' are almost always over-optimistic.

If you bought wisely, made truly value-additive improvements, and held on to the property for a decade - you may well be OK; but this ISN'T most people. You'll need cleaners, weekly maintainance, handy man/women, a marketer, maintenance capex, and the ability to tolerate extended periods of 'no rent'. The more you can 'spread the load/risk', the easier a time you will have.

 

Be clear on your objective.

To get the most out of the property, you need to be using it part of the time that it is empty, and that use is not 'free'. You're also there when it isn't a popular time to visit, so it also has to be a place you'd like to live in - not just visit. Paris in early January is wet and cold ... but if you like culture, and french cuisine .... it's not a disaster. 

 

Net-net you will most likely come out at a financial wash.

Transaction fees, and cummulative minor capex will erase much of your potential capital gain. Additionally, most of your annual P&L share will be lost to the cost of traveling to/from, and your expenses while on-site. The primary benefit will be that while on-site, your costs were covered. In our case, we get to go to, and stay in both Paris and Serville for a few weeks every year, for an extended period, at essentially a net cost of zero; while protecting the purchasing power of our money. The aim is to enjoy what you have, not try to make more.

 

Everyone is different, but it's not as easy as many would like to think.

Best of luck to you!

 

SD

 

Thanks, SD for taking the time to provide your input based on experience.

 

 

[JayGatsby]

Some of these things are a function of what you put into it too, so you have to put a value on the time to get a correct ROI. Most property management companies in colorado will charge ~40% a night for ski rentals, but they do everything