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1861 Views 4 Replies Latest reply: Sep 13, 2012 2:46 PM by scottr RSS
New Member 1 posts since
Jul 9, 2012
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Jul 9, 2012 1:39 AM

Newbie looking for advice about our first vacation home 10 questions.

Hello Everyone

 

We would like to purchase our first vacation rental home in Lake Tahoe California. We have never had a vacation rental home before and I am going to approach it like any other business goal and write a business plan on it, if for no other reason then to organize my own thoughts.

 

I wanted some help answering some questions and thought I would ask the experts.

 

1. How can you tell if a market is saturated with vacation rentals and cannot take any more units?

 

2. When I look on vrbo.com or homeaway.com at the types of homes I am looking for, I notice that their calendars show booked for a few months in the future. However I can't tell if that is because it is "booked" or the owners have made it unavailable for their own use, how far in the future do prospects usually book a home?

 

3. Would you recommend purchasing the home in your own name or set it up as an LLC?

 

4. Would the mortgage fall under a traditional bank loan or can you apply with the SBA for the purchase price of the home as it would be my business (side business as I would keep my primary job).

 

5. Anything you would suggest in the purchase of the first vacation home to make it more desirable to prospects apart from prime location (square footage, 3+ bedrooms etc) my budget is around $850,000.

 

6. Would you recommend purchasing furniture or renting furniture

 

7. The costs I will be accounting for are; mortgage, utilities, insurance, Internet, cable tv, marketing costs, housekeeping. Anything I am missing?

 

8. For the most part are your revenues covering your costs

 

9. In an ideal situation I would purchase an existing vacation home as I can look at the history of declared revenues. Is there a web site that specializes in such a thing.

 

10. How open do you think other vacation home owners would be in the market I am interested in about their average occupancy if I was to reach out to them? I don't want to insult anyone but I would tell anyone about my occupancy ( once I have data).

 

Thank you for your help and any thoughts regarding this.

  • sophie Senior Contributor 961 posts since
    Mar 4, 2011

    bardya,

     

    You can find tons of information on these forums about running and purchasing your vacation rental. I can tell you from my experience, that running a rental is much more difficult and time consuming that purchasing a rental.  I"ll answer a few questions from my own perspective. I own, manage and run 3 vacation rentals. I do not use them for my own pleasure, they are strictly rentals.

     

    1. Do a search on the area you want to purchase. Look at everyone's calendar. If no one (or just a few are) booked or if they are 100's of properties, it's an indication that area might be saturated.

     

    2. The majority of vacation rentals are not owner occupied or used by owners as their own. Every area is different in booking times. Some areas book out over 1 year in advance, some closer to the date. I normally book about 3-4 months in advance  on average.

     

    3. I personally have an LLC. You need to talk to your accountant/lawyer about this

     

    4. Your mortgage would be an investment loan. Banks have gotten very stict on this. Different guidelines, ie: downpayment, etc.

     

    5. An $850,000 home would require you have a substantial rental fee to offset your costs. The market for $1,000 per night homes is not as great at $250 per night homes.

     

    6. Purchasing.

     

    7. Furniture, beds, linens, dishes, appliances, furnishings, security systems, tvs, dvd players, amenities (soaps, lotions, etc.), landscaping, lawn service, maintenance, trash.

     

    8. For me, yes.

     

    9. I don't think so. Vrbo used to have a section for this but they have gotten rid of it.

     

    10. Most vacation rental owners are protective of their area and will see you as competition. I would assume most would tell you they have low occupancy so you would decide NOT to purchase because it gives them more competition and possibly lower occupancy for themselves.

  • thaxterlane Active Contributor 779 posts since
    Jul 27, 2011

    I have a series of questions for you that should clarify your thinking, but first I'll answer your questions (briefly).

     

    1.  Review online postings of properites to determine saturation of market.  This may be a several month effort depending on seasonal vs year round market, and the lead time for bookings.  In my vacation property's area (Cape and Islands region of MA), a successful property will book as early as several months to a year in advance. 

     

    Search local media for articles on the vacation rental market, tourism, etc.  There will be periodic articles about the state of the vacation rental industry over the course of a year, as it is important to the local economy in a tourist or resort area.  But, don't base decisions on the "industry experts" usually interviewed.  Read between the lines.

     

    2.   Is the area visited in a particular season(s) or year round?   Do bookings follow a particular timeline?  And, some owners and property managers do not keep their calendars up-to-date. 

     

    3.  This is a decison to make with a financial advisor.  What are your reasons and goals for owning a vacation rental property?  There are financing, tax, and insurance issues that will need to be factored into your decision. 

     

    4.  I have read that an LLC will have difficulty qualifying for a typical home mortgage (or may be ineligible, I'm not ery well versed in the world of LLCs).  There may also be issues over purchase of liability insurance.  There has been some discussion in the forum about this as well as in online financial forums.  These are good questions for a finncial advisorj, banker, and insurance agent.  You should be certain these individuals are well-versed in their industry, vacation rentals,  and the local market in which you wish to purchase. 

     

    5.  You need to know what type of housing and amenities are sought after in the area.  Do guests want a chalet, or a villa, a cabin, or a contemporary house?  Do guests want master bedrooms with en suite baths?  What attractions draw guests to the area?  Who is your target rental market?  Will you target upscale or more modest guests?  What are the typical amenities for the area?  There are basics in house facilities and equpment (think entertainment, kitchen, bath, etc), but the answer is a combination of what is expected in your market (back to reviewig online listings) and figuring out what your target guest expects?   This could include a game room, sauna, pool, hot tub, out door shower, etc. 

     

    6.  I'll skip this - I don't know why it would be advantageious to rent rather than purchase, unless there is a tax issue to be considered.  I think purchaing would be more economical, but that's a guess.

     

    7.  Taxes, maintenance (including landscaping contractor or snow removal depending on the season) are two that occur to me.  There are likely more that I am not thinking about.

     

    8.  Yes.  But , here's a warning, it's very challenging to cover costs on a vacation rental, especially going into the market at the present time.  See recent articles in WSJ and NYT.

     

    9.  Not that I know of.  The owner or realtor will make the records on a property available to you.  An attractive rental history is often cited in advertising to attract interest.

     

    10.  Some owners may be willing to provide this informatio to you, especially fi they are successful and not concerned about competition.  Others may want to warn you off the prospect, especially if they are frustrated and on the verge of losing their house .  But, you won't have any way of confirming the accuracy of anyone's answer.

     

    There isn't any substitute for extensive research before purchasing a vacation rental.

     

    Here are my questions:

     

    Are you familiar with the area in which you wish to purchase?  Why did you choose this area?  Do you plan to use the house yourself?  Have you considered the tax implications of personal use?

     

    Are you within reasonable distance of the area?

     

    Will you employ a property manager or do you intend to be responsible for the property (advertising, marketing, reservations, invoicing, and any of the physical maintenance and care)?

     

    And a few comments:

     

    The vacation rental business is not necessarily like any other business.  There is a great deal of "hospitality" work that is similar to the hotel industry.  There is marketing, outreach, concierge, physical plant, and being abreast of travelers interests.   There are some responsibilities that remind me of aspects of HR work  - guests can be high maintenance.  Emotions can run high; psychological training can be very useful .  Regardless of where and what you buy, the effort involved will be much more than you anticipate and, if you intend to manage yourself, you will need a broad range of skills to be successful.   

     

    Having waved several red flags at you, I wish you the best of luck.  If you retain your optimism and interest in the vacation rental market after reading this, you will do just fine!

  • scottr Contributor 201 posts since
    Aug 14, 2012

    bardya:

    I see this is an old post, so not sure if you are still looking for information.  This caught my eye as we went through the same analysis last year, before we purchased in South Lake Tahoe.  Here is some info you may be interested in:

     

    1) For days rented, we were told to expect about 100 for the year.  This is also an easy # to do math with once you figure your avg nighty cost.  We are doing slightly better than that, expecting to be about 110 days.

     

    2) The Tahoe real estate market took a big hit over the past several years, which is why we finally jumped in.  We were told that vacation rentals would not cover our costs.  If you buy right, you can get very close.  If you factor in the value of time you spend there (the cost of the one week rental you paid last year for your tahoe vacation), and tax benefits, you can come out ahead. 

     

    3) Tahoe has two distinct seasons. Summer, when the kids are out that runs from mid-June through Labor Day.  You can expect to pretty booked during that time.  Winter, when the snow is good, and runs from around mid-Dec through mid-April.  You will stay very booked from Ney Years through Feb.

     

    Any other time will be lightly booked and you'll be doing your maintenance and repair.

     

    3) The labor pool is spotty and turns over frequently

     

    4) Expect the first year to be slow as you get the site up and some reviews.  Guests are hesitant to book without a review. 

     

    5) You will have a lot of week-end only rentals as it draws a lot from the Bay Area.

     

    Good Luck 

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