Thoughts on short term rental property

[Sk08]

Interested in getting some opinions, and especially interested in hearing from someone that has invested in short term rental property.

We don't have any numbers to run by yet, just started looking what's out there. Would be a long way from where we live so would rely on property managers. Found a few that are both short term and long term, and that is what we are interested in. Like the idea of diversifying since we are entirely invested in the market, and also having a place to vacation at.

Wondering if this is worth looking into, or a waste of time and not worth the risk.

Thanks

 

[Sunset]

I think, since you are far away, it's going to be costly to manage, as it will have to be cleaned, tidied, laundered every change in visitors.



You could just buy REIT funds instead

 

[vafoodie]

We bought a cabin in Western North Carolina (Waynesville) two years ago that has been a joy, but there has seemingly been a great deal of good fortune involved. Ok, I will take credit for some of its success since I hired our property manager. We knew we loved the area and that our family would enjoy it quite a bit, so the short term rental aspect has just been a bonus. We knew nothing about being landlords or real estate ventures beyond a townhouse we rented out for about two years after we first got married 35 years ago. We also bought the house fully furnished (got all the furniture and porch toys for 1K, so it came ready to rent.) If I had had to furnish the place myself, it would have been overwhelming.
We were LUCKY to find an amazing property manager. He was a guy who was leaving the corporate world to start his own business. Very invested in making his business a success, and while it was a risk going with the new guy on the block, we have had no complaints.
Our cabin just happens to be on a mountain with a ski resort, another bit of serendipity; we didn't factor in how that would be a bonus, but it means our place is a four season rental.
Then Covid hit, and we had it to use ourselves when we could go nowhere else, and the real estate market drove it's value up by 100K if you believe Zillow.
We clear about 20K a year in income from the rental of the property and all in all, our experience has been quite positive. My husband loves to brag about his cabin.

 

[ivinsfan]

vafoodie nice that you are happy but some numbers would be nice. I think people are in interested in things like.


What % of gross rental do pay the property manager? This can vary a lot?


When you say clear 20 what do you mean..as in what numbers do you include? Do you include all RE taxes and insurance costs?



How many nights a year do you rent as opposed to personal use? And how does that work on your numbers when you pay taxes? Isn't there a limit as to how many days you can use it and still deduct all your expenses?

 

[Dash man]

We bought a house at the Jersey Shore a little over two hours from where we live. We didn’t buy it as an investment, but as a place for family to use and get together. We do rent it out for between 6-8 weeks during the high summer season for $4,200/week, which is too low we’ve found out. Next year it’ll go up to $4,700 at least. We have no trouble renting it using a local realtor, and have a regular cleaning service. Plenty of contractors for whatever needs doing. The rentals cover all of our annual costs and we can block out any dates we want to use it. Most tenants are good, but a few are blacklisted from returning. No serious damage has ever occurred. It’s an older craftsman home built in 1940, but has been updated. People like it over the typical condos many renters use. The value has increased about $300k in the four years since we bought it. We have no plans on selling it and will likely leave it to the kids to figure out what to do with it.

 

[ExFlyBoy5]

I think it really depends on where you purchase. Biggest issue I would be concerned about is zoning laws (and changes to those laws). Some places have no issues with these rentals, other places it's forbidden...so I would pay close attention to that.

We briefly considered buying something in Mexico but after crunching some numbers and talking to a few folks that own property (and rent it out) down there, we figured it wouldn't be worth the effort.

 

[vafoodie]

We pay the property manager 20% of what we earn monthly. This is apparently 5% less than the going rate for property managers.
20K is what we cleared after taxes and insurance. We're hoping this amount will increase as the property becomes more in demand. We are starting to have repeat "guests."
Not sure about the personal use vs. rental stuff. We get a statement, and the accountant works all that out. It has varied from year to year. For example, during the height of Covid, we worked from there for a month in the spring, but that won't happen this year, so we hope we'll see some good income during the nice spring months.

 

[Chuckanut]

I think it really depends on where you purchase. Biggest issue I would be concerned about is zoning laws (and changes to those laws). Some places have no issues with these rentals, other places it's forbidden...so I would pay close attention to that.

Good point on zoning laws, and in the case of a condo the HOA rules. A lot of condos limit the number of rentals and forbid short-term rentals. Nobody who actually lives there wants to turn their community into a hotel for tourists.

 

[Sk08]

Thanks for the reply's, and glad to hear some of you are happy with the short term rental investment.

What we are thinking about looking closer at would be like a condo/hotel that is meant for short term, and some of them have onsite/inhouse property managers and cleaning crew.

It looks like they work on percentage of rent, and the cleaning fee's are a set amount, so their fee's plus the monthly HOA and insurance would be a known number. The big unknown and risk is the occupancy/vacancy.

We can give some numbers when we talk to a couple different places, they don't list fee's or typical rent online.

 

[Sunset]

I would be wary of some condo/hotel selling off units to manage for the owner. I can see a giant conflict of interest.

Hotel is at low occupancy, so do they rent out your place or one of their own to the next customer ?
Boosting the cost of cleaning costs to the owner to make their own costs lower.

If they don't list fee's to rent online, how do customer's rent one ?

 

[BeachOrCity]

I have done a lot of short term rentals. It’s a business more than it is real estate. I would only consider it if I lived within a 1/2 hr drive. If you are remote, costs will eat you alive.

This is very different from renting out ur 2nd home. In this case you are just subsidizing ur lifestyle. Very different.

 

[SonofCohoes]

We just bid on a place and were given a copy of the rentals. Their management firm charged 35%.

 

[vafoodie]

SonofCohoes got me curious. Those of you who do short term rental and use a property manager, what percentage of your earnings do they charge?

 

[Dash man]

SonofCohoes got me curious. Those of you who do short term rental and use a property manager, what percentage of your earnings do they charge?

We pay 12%.

 

[BeachOrCity]

SonofCohoes got me curious. Those of you who do short term rental and use a property manager, what percentage of your earnings do they charge?

I have had a number of ST rentals in diff markets. KEY in understanding what you are charged is to not only look at what YOU are charged, but what your TENANT is charged as well. They have all morphed into keeping your commission the same, but then charging the tenant all kinds of fees etc. Your tenant looks at the total cost incl what they are charged so that is what you have to compare.

You also need to unbundle things like cleaning, linens, complementary maint checks (like if tenant says problem with TV, they come by and correct their use of remote)..... some company's won't charge owner for this.

After you have looked at both sides of charges. If you can get it to 20% or less you are doing well. Some company's will try to get 30% plus.

If someone is doing this for 12%, in all likelihood, there is little marketing of your home and you may be losing alot of money on the revenue side. Or if you are paying 12%, but then VRBO charges 9%, that is actually 21% for example.

 

[Dash man]

I have had a number of ST rentals in diff markets. KEY in understanding what you are charged is to not only look at what YOU are charged, but what your TENANT is charged as well. They have all morphed into keeping your commission the same, but then charging the tenant all kinds of fees etc. Your tenant looks at the total cost incl what they are charged so that is what you have to compare.



You also need to unbundle things like cleaning, linens, complementary maint checks (like if tenant says problem with TV, they come by and correct their use of remote)..... some company's won't charge owner for this.



After you have looked at both sides of charges. If you can get it to 20% or less you are doing well. Some company's will try to get 30% plus.



If someone is doing this for 12%, in all likelihood, there is little marketing of your home and you may be losing alot of money on the revenue side. Or if you are paying 12%, but then VRBO charges 9%, that is actually 21% for example.

Well, we have no problems getting tenants, so we’re not losing revenue. We’ve never been charged for ABNB, but it is listed there. I think all of our tenants have been found through the Realtor website.
Competition among realtors at the Jersey Shore is pretty stiff, so I think that is the driver for lower fees. Tenants provide their own linens, but they usually use a local service. Proximity to the beach or the bars drive the prices up, so realtors actively pursue those listings. We get calls from realtors as often as we get calls for extended car warranties. [emoji23]

 

[Sk08]

I would be wary of some condo/hotel selling off units to manage for the owner. I can see a giant conflict of interest.

Hotel is at low occupancy, so do they rent out your place or one of their own to the next customer ?
Boosting the cost of cleaning costs to the owner to make their own costs lower.

If they don't list fee's to rent online, how do customer's rent one ?

We have not contacted anyplace yet, but have seen 1 place showing that all units are individually owned, and they use a cycle to keep it fair for similar units. I guess nothing is stopping the owner of the management from buying a bunch of units and keeping those rented first.

So far we have only browsed the area we're interested in and looking at purchase price, and they don't have rent price listed. To find the rent price we would have to look as if we were a customer to see what some rooms are advertised for, but the unit for sale might offer more or less than the advertised room, so price could be off a little.

It was just an idea we thought of as, a way to diversify. We have not spent much time looking into it, just enough to see that there are units for sale. I think now we are going to look closer at what is for sale and see if we find any that we want to get some numbers on. We will update once we know more. Thanks everyone for your opinions.

 

[street]

I don't have any experience in short-term or long-term resident renting. I would say it would be less profitable and more of a hassle living so far away from owned property.
I'm not saying it is a bad thing but more juggling and depending on others to look after your investment.

The only thing I can add some value to is that when buying real estate, you need to buy when times are low price and times are down. Buying right is one key that has done well for me. If the property is over inflated, I would pass in these times of high property prices.

I don't want to discourage a new venture or dream but how you buy is important just like any investment you have.